The finance ministry claims that it has managed to secure commitments to the tune of $5.27 billion from the US, the UK and international financial institutions over the next four years. No further details were reported, however, concerning this supposed financial influx. For instance, what proportion of this money will be in the form of aid, or else in the shape of loans adding to our existing debt burden, is not clear. According to a recent IMF report, Pakistan’s external financing requirements will be much higher in the even more immediate future. In the next fiscal year, Pakistan’s estimated requirement to help manage its fiscal deficit is $10.5 billion. Out of this amount, $4.3 billion will be needed just to pay off prior IMF debts. Being an entity which is primarily in the business of lending money, the IMF does have an evident motivation to lend us more money, even if to pay back its earlier loans. The details of the new IMF lending programme are still not clear though. Perhaps, the IMF will approve fresh credit or else it may rollover repayments.
The last government had claimed with much fanfare that our nation had managed to finally break the begging bowl of IMF loans. However, the incumbents were compelled to return to the IMF when the Friends of Pakistan began dragging their feet on provision of promised aid. But then the PPP-government-requested IMF programme worth $11.3 billion also ended prematurely with $3.4 billion not being disbursed. This was because the PPP failed to ensure central bank autonomy, as well as failing to reform the energy sector and ensuring implementation of the reformed general sales tax. All these unimplemented conditions will probably be reasserted as conditionalities within any new financial assistance package.
Yet our finance minister maintains that the international financial institutions have confidence in the Pakistani economy, since the World Bank has approved an unprecedented lending surge for financing development projects. This is despite the less than enthusiastic IMF and World Bank assessments, which do not consider Pakistan’s short- and medium-term prospects to be looking too good. The rising commodity prices, a probable surge in oil import costs, and impending deadlines on the payment of external debt are expected to sharply diminish the existing foreign currency reserves, which the government keeps boasting about. Rather than a newfound faith in the capability of our financial planners, perhaps a more relevant reason for Pakistan securing a fresh IMF package may be the softening stance of the US towards our government. The IMF lending will probably give a signal to the World Bank to continue extending loans to Pakistan as well.
Some recent press reports, citing undisclosed officials, have suggested that a new programme with the IMF may be signed before the end of the current year. This means that the present government will have to begin implementing reforms immediately after the coming budget. The question is, if the current government will be capable or even interested in implementing tough belt-tightening measures just before the general elections? Furthermore, the IMF will surely seek guarantees to try and ensure that the terms and conditions agreed and signed by the present government are implemented by the new government, and it may even wait to sign a new programme until then.
Besides the apparent underlying imperatives of using international aid to achieve geostrategic goals, and helping the present government keep the domestic economy afloat around election time, one wonders what greater good the IMF lending will achieve. Surely, a prerequisite for this latter objective is to transcend the myopic approach of international and domestic policymakers, and take a harder look at the actual prospects of maximising more equitable growth, even if that means contradicting typical neoliberal assumptions.
Published in The Express Tribune, May 10th, 2012.
COMMENTS (9)
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@BruteForce:
China will NOT hand you billions in foreign exchange that you can park in your central bank. They have bailed us out now and then by making a deposit and so have the Saudi's, Kuwait and also perhaps the UAE. The oil producers have money they don't know what to do with but they don't like dishing it out and even if they do, they will ask for their pound of flesh in return.
There is no such thing as unconditional aid. All external aid in whatever form comes with strings attached.
@S.M. Ali:
In 2008, while we denied IMF rumors, we were talking to them behind-the-scenes. That is not unusual.
At the moment, however, there is NO formal request. I will ask again this morning when the sun comes up (it is not even 5am here) and I will probably get the same answer unless something has changed and the IMF has an actual letter in its hand addressed to the MD and signed by the Governor State Bank and the Finance Minister.
But think of it this way. WHO is going to implement a new arrangement under the present chaotic circumstances with, it seems, no one in charge of the economy? This present lot? Not a fat chance. Another lot? Who might they be and under what dispensation?
Why isn't China being approached? I am sure it will not lend or give a penny, but that door should be closed to remind my Pakistani friends that USA is the only power which holds Pakistan's future in its hands.
Opent the supply route, take control of North Waziristan, take out all the anti-India militants, scale down your nukes. Uncle sam will generously guide Pakistan to a better future. Else, well, you all know what will happen or will know in the future.
@ Meekal Ahmed, no request really? Then what about all these categorical statements to the effect? Maybe the request has not been officially made yet, but is on the cards... Although the closer it gets to elections the ticker it will be to sign on a new agreement.
I wouldn't spend the money until it clears the bank - your relationship with the USA is trending downhill and those promised funds can vanish with a phone call.
IMF is not pushing the loan on PAK throat. PAK does not have to borrow from IMF,and frankly I doubt if any new loans other than those for specific projects will go through without the earlier promised tax and subsidy reform.
Lender is not the bad guy here. After all PAK is also a member of IMF with special drawing rights.
@Authour :"one wonders what greater good the IMF lending will achieve. Surely, a prerequisite for this latter objective is to transcend the myopic approach of international and domestic policymakers, and take a harder look at the actual prospects of maximising more equitable growth, even if that means contradicting typical neoliberal assumptions".
What are the "myopic reforms IMF wants? 1. Significant increase in tax to GDP ratio (If you do not want to implement RGST, you can do it through taxing agricultural income or increasing income tax or capital gains tax). 2. Energy reforms which has 2 parts a. Rationalize subsidies in the energy sector so that the circular debt does not grow b. Resolve circular debt on a one time basis 3. Central bank autonomy so government cannot just print paper creating an environment of high inflation.
Can you manage to grow your economy and that too - equitably (which is your goal) WITHOUT implementing these reforms?
Definance for the sake of defiance does not pay, no matter what label we give the other side. India, Outh Korea and Thailand had to implement IMF conditionality in 1990s and their economies significantly benefited from that discipline.
Agree with you. Foreign Aid and Loans might be a blessing in the short-term but are a curse in the long run because they have kept our economic system on life support for a while; because of which a lot of fiscal reforms that should have been implemented decades ago are still pending.
Ali,
As an e-mail friend of mine, I thought you might have asked this question of me before penning this piece. When I heard this, I immediately called the IMF Mission Chief for Pakistan here in Washington and asked him.
His comment was a terse: "NO REQUEST".
That is the end of the story. Of course the Pakistani delegation would have taken the time to discuss financing requirements in the period ahead. That is a very routine affair, happens everytime, and it signifies nothing.
The World Bank and others giving us pots of money is neither here nor there. Of course we need money to finance investments in vital physical and social infrastructure. But all this is project-related financing. With the project pipe-line about seven to ten years deep and with resources spread thinly over too many projects, we need more money for projects as much as we need a hole in the head.
As for the IMF desperate for a new client. I am sure you know that the IMF is up to its eye-balls in Europe and the last thing they need is another wayward and fickle client that will take their money again and run!!