New programme?: Mounting foreign debt may need IMF’s helping hand

Published: April 22, 2012
Islamabad discusses state of economy with the lender in Washington. PHOTO: FILE

Islamabad discusses state of economy with the lender in Washington. PHOTO: FILE


Pakistan may opt for another International Monetary Fund (IMF) monetary package, after the lender raised concerns over the country’s ability to repay foreign debts in the next financial year.

Amid reservations over Pakistan’s ability to take tough decisions in an election year, and broken promises of the last financial package, Pakistan and the IMF held discussions in Washington on the state of the economy and the financing required to avert any fiscal crisis next year.

“Both sides discussed recent economic developments, the outlook for the Pakistani economy, and financing requirements,” one of the participants of the meetings said. He added that IMF conveyed its concerns regarding the vulnerability and persistent risks to the fragile economy.

“Based on the current outlook, Pakistan’s short and medium term prospects do not look good,” the official said, adding that the country’s external position – ability to make foreign payments – would weaken significantly in fiscal 2012-13.  He stated that the major risks highlighted in these meetings were the rising commodity prices, surge in the oil import bill and the upcoming deadline on the payment of external debt that will diminish foreign currency reserves.

According to a recent IMF report on Pakistan’s economy, gross external financing requirements in the next fiscal will be $10.5 billion.

Chequered relationship

Pakistan and the IMF have a chequered history. The last monetary programme worth $11.3 billion ended prematurely with $3.4 billion not disbursed. Pakistan failed to ensure central bank autonomy, reform of the energy sector and the implementation of the Reformed General Sales Tax. All the unimplemented conditions will hold priority for any new financial assistance.

“The next IMF package is written on the wall, the only question is when it will be approved,” Business School of National University of Sciences and Technology Dean Dr Ashfaque Hasan Khan said. He reiterated that Pakistan will require $4.3 billion next year just to pay off the IMF debt.

All is not doom though. Both sides noted some encouraging signs on the external accounts, particularly the current account deficit that widened by only $142 million in March. Current account deficit is slightly over $3 billion, $300 million more than what the finance ministry had assessed for the entire fiscal.

New programme with caretaker govt

According to an insider, a new programme with the IMF will be signed before the end of the current year. He said that after the upcoming budget, Pakistan will implement a shadow programme that includes implementation of some of the conditions that were unmet. If Pakistan successfully manages to implement some of the prior actions agreed in the last programme, the new package could be signed by a caretaker government.

However, he warned that the IMF will seek guarantees and political ownership, as it has previously experienced a situation where terms and conditions agreed and signed by caretaker governments were not fully implemented by the new government. The official remarked that the IMF would not approve fresh credit but may rollover the repayments.

An important signal of getting a fresh package will be “the softening stance of the United States” that will also give a signal to the World Bank to extend fresh loans to Pakistan to provide it breathing space.

Published in The Express Tribune, April 22nd, 2012.


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Reader Comments (34)

  • Zaid Hamid
    Apr 22, 2012 - 8:50AM

    We should ask all weather infidel friend to give us Himalayan stacks of money to balance our common infidel enemy.


  • Pradeep
    Apr 22, 2012 - 8:56AM

    What? Accept help from these Godless Westerners? Pakistanis would rather die of hunger right? I am saddened when I see such comments from Pakistanis on forums like ET. It is easy to write such comments with a full tummy sitting in front of a laptop with high speed internet connection. However if one were to ask a man on the street struggling to make ends meet the answer would be different.

    Fellow Indians… please do not gloat over the situation in Pakistan. We have more or less the same situation in India. It is a reason for shame that Indians are among people who give least of their amount to charity.


  • KH
    Apr 22, 2012 - 9:11AM

    Just keep on running the economy on debts….after so much potential available, this Government can only beg to run…..I hope this current govt comes to an end, and hope fully our people can select some one else.


  • Mirza
    Apr 22, 2012 - 9:39AM

    We have money for hundreds of nuclear bombs we are not beggars. We are rich to keep a bigger army than most all European countries. We still can devote most of our resources on the army officers, high tech expensive war toys and nuclear arsenal. Once we become a real danger and threat the world would have to cough up the money at the name of our poor restless civilians.
    We forget the facts that we have more elite generals than most countries of the size of Pakistan, more SC and HC judges than even the US and army’s hands in more businesses and real estate than the business community. Our legally banned religious leaders lead big processions in broad day light and I can keep going but the point is made!


  • zalim singh
    Apr 22, 2012 - 10:02AM

    where is Riaz Haq saheb to give us a pep talk?


  • Concerned
    Apr 22, 2012 - 10:11AM

    All depends upon US nod to IMF for the monetary package, while Pakistan needs to improve relations with US and come off its high horse since its existance depends upon continues foreign aid.


  • Max
    Apr 22, 2012 - 10:34AM

    A typical dilemma of the rentier state. The state does not have the capacity to extract and pay its bills. Need to learn from what is happening in southern Europe, but we are “who cares” society and I add the state as well.


  • Not me
    Apr 22, 2012 - 10:44AM

    Pakistan will fall short by about atleast Rs 150 B in tax collection target this year.

    The projected inflows ( Etisalat payment, GDR ,US grants etc) have not come through.

    The foreign reserve figures are not in strict sense correct as they include foreign currency deposits of individuals also.

    So IMF loan is necessary and this time IMF will impose pre-conditions ( pre-actions)


  • Apr 22, 2012 - 10:59AM

    A rollover of loan repayments will give Pakistan some much needed breathing room. But I have to wonder whether this govt. is capable of introducing the reforms that the IMF wants. For example broadening the tax base. Here’s hoping that the IMF sticks to its guns and insists on reform implementation.


  • Pragmatist
    Apr 22, 2012 - 11:29AM

    @Pradeep: I would appreciate it if you stick to speaking for yourself and not generalize.

    IK has promised that he will spurn WB and IMF loans and he reckons that Pakistanis will fight among themselves to be the first to pay their taxes. If that comes to pass, this whole issue will be moot.


  • Apr 22, 2012 - 11:47AM

    Too bad IMF can’t give Pakistan money without getting approval from US.


  • Cautious
    Apr 22, 2012 - 12:44PM

    Isn’t this the part where you suppose to “eat grass” – your made the choice where you want to spend your money – live with it.


  • How?
    Apr 22, 2012 - 1:02PM

    All politicians ‘promise’ the same, be it civilians or khaki. The world knows which groups are backing IK.


  • Money Matters
    Apr 22, 2012 - 1:13PM

    Pakistan should pull on for sometime till BRICS bank comes into existence. After that it can dump IMF, and keep borrowing from BRICS Bank in Chinese Yuan.


  • Falcon
    Apr 22, 2012 - 1:24PM

    Most of the people who are commenting on how badly we need U.S. need to understand that there is no free lunch. Yes, we need to have good relations with them. But if our relationship with them is primarily based on aid and financing, they will exercise control in Pakistan’s political interests as well, which can have potentially much higher economic costs in the long term for Pakistan. Aid is something we have relied on more than 50 years now and see where we stand, we are so addicted to it that we haven’t even made the basic structural reforms to fix our country’s fiscal condition.


  • How?
    Apr 22, 2012 - 1:28PM

    @Money Matters:
    Do you know that India is a founding member of BRICS?


  • Hedgefunder
    Apr 22, 2012 - 1:57PM

    @Money Matters:
    There is a big I in BRICS, do you know what it stands for? Do you really think they will entertain your lot, with all the past and present baggage???
    Stop living in dreamland !


  • Ammad Malik
    Apr 22, 2012 - 2:00PM


    Your comments suggest you are anything but a pragmatist. IK ‘reckons’??? IK needs to focus on charity work like SK hospital, he was doing a tremendously good job. He’s wasting his time and creating turmoil for the rest of society simply because he is foolish and lacks any intellect or wisdom. There can be many better uses for a man with his determination and leadership, he’d be a fine PCB head also. Just a few ‘humble’ suggestion for our national hero.


  • apj
    Apr 22, 2012 - 2:19PM

    Back to square one. Hum is jeenay ke haaton mar chalay!


  • Meekal Ahmed
    Apr 22, 2012 - 2:42PM

    Shahbaz, good stuff. But sounds like a repeat of the words in the Article IV! Nothing much has changed.

    I love our little Indian friends jumping in here and giving us lectures on how we should run our economy and how great they are!

    Do you guys read? Know anything about your own economy?

    Your CPI inflation just clocked in at 9.7% YOY. Your growth is at its slowest level in three years and it is unclear whether it will rebound. Your fiscal accounts are a mess; your external CAD is widening when it was always at a “safe” 1-1.5% of GDP. The reform process has not only stalled but has reversed itself. Corruption has reached astronomical proportions and goes right to the top.There has been one scandal after another. India’s poverty levels jarr the soul.

    Now to Pakistan. I did not know there is going to be a Caretaker government. Obviously I have been living under a rock. The situation is manageable but it is going to be pretty tight. The inflows may not come in this year, but they will come in and shore up the external side. We are talking very large amounts, not peanuts.

    The key is what the government (this government or the next) will do if it gets some breathing space. Nothing?

    The IMF Board is made up of 24 Executive Directors. ALL of them think they are important. The American’s cannot pull a rabbit out of a hat this time. Unless there are prior-action (for example a VAT actually passed by Parliament and PSE reforms), the Americans are powerless. Don’t count on them. They are not miracle-makers.


  • Pradeep
    Apr 22, 2012 - 3:14PM

    @pragmatist – IK has “promised”?

    Oh ok… everything must be fine then. He is after all the messiah. Has he also promised that Santa Claus will be bringing presents to every Pakistani home this Christmas? Super awesome. Peace out!


  • Its (still) Econonmy Stupid
    Apr 22, 2012 - 3:24PM

    Pakistan is spending $1million per day on Siachin Glacier. All she has to do is sign on AGPL and save $365million dollars in loan and interest. Forget about the Kashmir as a core issue and withdraw army from Kashmir and you do not need this IMF loan with lots of string attached. But than all the armchair security analyst will be out of topics to talk about.


  • True Muslim Paki
    Apr 22, 2012 - 3:52PM

    Why cant China pay us? I really dont understand why the foreign ministry wont go to china to ask them for help. We have helped china many times and its time they pay back. Why cant saudi/bahrain help us? Didnt we help them & if they dont help us, i think we should side with Iran. Thats it. The government & its foreign ministry is useless and trying to talk to india for peace while they should have been talking to Iran. Alhamdulillah.PTI, once in power will solve these problems.


  • Hedgefunder
    Apr 22, 2012 - 4:06PM

    @True Muslim Paki:
    Just what help has Paikistan been to China, Saudi or any other Nation on this Planet????
    By which Divine right should anyone help Pakistan, when it is reluctant to even honour the agreements, arrangements and impose policies made for the Loans in past????
    Hey wake up !!! Pakistan is not the centre of the Universe !!!!
    Time has pass, where by others are likely to accept words or assurances for any further loans or aid, without accountabilty !!!


  • Surya
    Apr 22, 2012 - 5:58PM

    @Meekal Ahmed:
    Your “pick & choose” economic leture doesn’t make any sense..India will grow by 7.5% 2012-13..and tht’s astronomical by Pak’s standards..I suggest you read about India’s voting power in IMF and America and its allies remains most powerful without them no hope for Pakistan..Don’t build castle in the air..


  • Sam Daniel
    Apr 22, 2012 - 6:19PM

    Pakistan spends $2.5 billion every year on upkeep and production of nuclear weapons, nuclear experts say. There is no pride in having more nuclear weapons than Briton and getting IMF Loan every other year. Circular Debt is greater threat to pakistan in comparison with Terrorism, U.S, India.


  • SimonSays
    Apr 22, 2012 - 8:48PM

    @Money Matters:

    I don’t think that would happen. Reason:
    1. BRICS bank would take ages to materialize.
    2. Even if it does, you would need to seek nod from India for the loan

    Wonder if you would be willing to do that. All that honour and dignity. Why dont you ask Hamid Gul / Hafeez Saeed et al. They may have some solution.


  • Meekal Ahmed
    Apr 23, 2012 - 12:16AM

    I worked in the IMF for a decade and a half and don’t need any lessons from people like you.

    Are you comparing India’s voting power to America?

    I KNOW America has 16% or thereabouts. I know they are powerful and influential. But they will have to convince the G-8 and other chairs so that there is at least a 50% majority voting for another Pakistani program.

    All I am saying is that this time I hope for the sake of Pakistan there are no short-cuts and/or concessions. The IMF needs to be firm and tough.

    On India, yes I know what the PROJECTION is for next year. You obviously do not read either the Economist, the Financial Times or other international newspapers and magazines which in recent weeks have been full of stories of India’s faltering reform agenda. No reforms will mean lower growth and higher inflation.

    I was in the IMF when India came to them for a bail-out. Your PM, then the FM, cut the deficit, devalued the exchange rate, implemented reforms and unlocked the suffocating liscense raj. The economy, hitherto a joke with a Hindu Rate of Growth of 2% per year while Pakistan was clocking in at a regular 6% per year, took off. Now those reforms have faded and India needs a second-generation of reforms. There does not seem to be the political will to take them, especially with elections coming up and your PM, while a good man, is looking increasingly ineffectual and out of touch.

    Read my friend. I don’t make things up.READ!. .


  • Hedgefunder
    Apr 23, 2012 - 11:17AM

    @Meekal Ahmed:
    Sir, i was waiting for your response to Surya, if Surya would have bothered to google your
    good name perhaps she would have been more enlightened,. I hope all is well with you.


  • Muhammad Sarfraz Abbasi
    Apr 24, 2012 - 1:14AM

    To me this loan is like a theft of a your peon, to whom you send to a bank for the cash cash withdrawal, he receives the cash from the bank and then deposits it it in his own account and comes back you crying and saying someone has looted him and just for the sake of recovery of money you keep him on job and deduct some portion of his salary in instalments, that is how he gets his job confirmed for sometime.. This would the role of new loan which will will force international powers to keep the looters in power… playing man they are playing a dirty game..


  • Truthbetold
    Apr 24, 2012 - 1:23AM

    @Meekal Ahmed:

    Makes sense. All that these loans do is to dig the hole a little deeper making it even more difficult to get out of. Loans can be a good thing if they are used to productively invest to create economic activity and enhance growth. Unfortunately, this hasn’t been the case with Pakistan. All that they are doing it to use the new loans to pay interest payments on old loans. Not a good thing.

    As for some nationalistic Indian response here, just ignore them.

    PS: I answered your question to me on Pak defense spending to GDP in


  • Surya
    Apr 24, 2012 - 6:45AM

    @Meekal Ahmed:
    My friend, i knew your background (i’ve read your articles, many of them are good one) even before ..I too worked for 7 years in WB before moving on to a policy think tank in Singapoare focussing on South Asia.

    I do agree to your view that there is policy paralysis in the federal government due to coalition challenges but India will still grow due to its structural strenghts and the new so called “hindu rate” of growth will 6.5% – 7%. With reform policy momentum it can grow even to double digits subject to global economic conditions..past couple of years even China is slowing down from its peak due to prevailing economic conditions so it doesn’t prove much..

    You seem to suggest that India grew at 2% before 1991 reforms which is not true..a scholar like you should backup with facts & figures and not shoot in the air like other pakistani commentators here.i would suggest you to read Bhalla et. al., Start of India’s Decade, Feb 2000..too much emphasis seem to be given for over rated 1991 reforms, Even in 80s India was growing at reasonale rate of 5.5% – 6% though i would not say it was high growth but definitely not laughable as you seem to suggest… so i suggested that your analysis or prophecies seems to be lacking substance or thorough analysis on India’s macro-economic fundamentals instead relies on newspapers & magazine reports..Currently RBI is like stuck in inflation vs growth equilibrium dilemma which should not last long..

    Coming to Pakistan, most of those growth came via generous aid packages and not really based on institutional strengths of pakistani a matter of fact, go and check its GDP growth rates in 1990s when US abandoned Pakistan..Unless your society cleans-up its act, no hope..

    And for corruption, do you think there is no corruption in China? Many chinese officials visit us institution i am pretty much sure that corruption is as big as in India..Only one that differentiates them is “GDP growth at all costs” which is simply not possible in a demcracy like India..

    Long story cut India will still grow due to continued economic (though intermittent) and most importantly due to its human capital and strutural factors..Refute with me with facts, i am willing to engage positively..


  • Surya
    Apr 24, 2012 - 6:48AM

    @Meekal Ahmed:
    My friend, i knew your background (i’ve read your articles, many of them are good one) even before but please don’t assume others are illiterate..I too worked for 7 years in WB before moving on to a policy think tank in Singapoare focussing on South Asia.

    I pointed out several facts on why your argumemnt lacked depth in terms of macro level analysis..

    alas, i tried to post thrice but moderated, made a last try and am giving up..this reply is a precursor to that.


  • Concerned
    Apr 24, 2012 - 2:21PM

    @Meekal Ahmed:
    Your credentials are impressive and I donot possess the same to match your goodself. However, my logic is simple that one should never chew the hands that feeds you and since US also has the influence to manuplate the world bodies being the only super-power especially when require aid both from US and IMF. What you stated about economic situation in India is factually correct but if you compare economic slump in developed economies of West there is nothing to scoff at and India is doing reasonably well.


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