Doomsday scenario: IMF paints a gloomy picture of Pakistan’s economy

Published: January 18, 2013
“According to our one-month assessment, Pakistan’s currency is overvalued by 5-10%," says Frank.

“According to our one-month assessment, Pakistan’s currency is overvalued by 5-10%," says Frank.


The International Monetary Fund (IMF) may sign a loan programme with the caretaker government if all major political parties agree on a broader set of action plans. However, before that is possible, Pakistan will have to take some tough prior actions, says the Fund’s representative for the region.

In a luncheon meeting with a group of journalists here on Friday, Jeffrey Franks, adviser to the IMF for the Middle East and Central Asia, spoke at length on the grave economic situation the country is faced with. He also shed light on the Fund’s ongoing dialogue with the government, aimed at building consensus on a set of conditions needed to be fulfilled before and during the course of a fresh bailout programme. Franks was accompanied by the new IMF Country Representative Mansoor Dailami.

“The current polices will have to be readjusted in order [for Pakistan to become eligible] for an IMF programme. The IMF has discussed with the government what kind of policies would be necessary,” said Franks.

The IMF’s prescription to Pakistan includes a healthy measure of – not surprisingly – increasing taxes, cutting expenditures, withdrawing electricity subsidies and increasing interest rates to check inflation, which is expected to rebound soon and devalue the currency further.

“We have agreed with the government that the deficit eventually needs to come down to 3-3.5% of the GDP in three years, from the current level of over 7%,” revealed Franks. “According to our one-month assessment, Pakistan’s currency is overvalued by 5-10%. Modest depreciation might yield positive results for the economy,” he added. “The monetary policy also needs to be calibrated to bring down inflation to between 5-7%.”

He underscored the need for having “broadest and deepest possible political support for any new programme”. Franks also sought support at the highest levels, besides taking provinces on board, before the government enters into a formal arrangement with the Fund. He said that if political parties agree on a broader reforms agenda, the IMF can be flexible on how Pakistan goes about achieving it.

“The decision whether or not we will enter into a programme with the interim government will be made by the IMF management: however, if there is very strong and broad political support, going beyond the interim government, it might be possible,” Franks said, while responding to a question asking about the timing of the programme.

The IMF official observed that Pakistan’s problems require long-term solutions, and that any new programme will not last less than three years.

Franks disclosed that, according to the IMF assessment, this year’s budget deficit will remain around 7-7.5% of the GDP. In absolute terms, the IMF projects a Rs1.624 trillion deficit – a whopping Rs516 billion or 2.3% higher than government estimates. Besides the significant shortfall in revenues, Pakistan also may not be able to complete the auction of the 3G telecom spectrum, causing another shortfall of around Rs75 billion.

To add icing to that unsavoury cake, the economy will grow just 3.5% this year according to the IMF’s estimates, as against official projections of 4.3%.

“The number one bottleneck to growth is the energy sector. The number two bottleneck is the energy sector, and the number three
bottleneck is also probably the energy sector,” said Franks.

“Private sector credit growth is very weak; large scale manufacturing is positive, but very low; and we don’t see robust export growth,” observed Franks. He further said that while declining inflation is a good indicator, it is also worrisome because domestic demand continues to remain weak. He also criticised the government’s tax collection efforts, which he said are indicative of weaknesses in the economy.

Even though the IMF has projected a current account deficit of a low 0.7% of GDP, Franks warned that even this low level is dangerous due to drying foreign inflows. As a final blow, he also ruled out any restructuring of IMF loans.

He agreed that tough actions may cause a temporary drop in growth, but insisted that they were necessary for achieving macroeconomic stability.

Franks also hinted that the central bank should be made an independent part of plans for the new programme.

Published in The Express Tribune, January 19th, 2013.

Like Business on Facebook to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (65)

  • PakSurzameen
    Jan 19, 2013 - 12:12AM

    Pakistan will export its 1 pound Fisssssssh!!


  • meekal a ahmed
    Jan 19, 2013 - 12:18AM


    I must have said here a hundred times that IMF loans cannot be re-scheduled! Why do you bring this up each time you write about the IMF?

    This is “the final blow”? What final blow?

    Either you don’t read what people say, or you don’t learn. I don’t know which.

    The IMF is a “preferred creditor”. They get paid FIRST.


  • Misery Ghalib
    Jan 19, 2013 - 12:23AM

    beginning of the end


  • nm
    Jan 19, 2013 - 12:25AM

    I predict the coming of comments simultaneously blaming the government (who have gone against all IMF prescriptions) and at the same time saying that IMF prescriptions are wrong too. So everyone is wrong. We must eat our cake and have it too, you see.

    It sounds like schizophrenia when you read opinions that can even within one sentence complain about high debt and fuel price hikes. Pick a poison already. You can’t have subsidies and low debt at the same time.


  • XX
    Jan 19, 2013 - 12:34AM

    Two words Mr. IMF: Odious debt.


  • KHAN
    Jan 19, 2013 - 12:35AM



  • ayesha azeem
    Jan 19, 2013 - 12:40AM

    Meanwhile We are busy tackling likes of Tahir-Ul-Qadri
    Kya banay ga is qaum ka bhaiyu?


  • Feudalmindset
    Jan 19, 2013 - 12:41AM

    Congratulations to Zardari, Bhuttos, Shareefs…etc


  • Ricky
    Jan 19, 2013 - 12:41AM

    IMF would give us all the money we want. They have to realize we have the bombs and huge army and need money. We know how to get it and have been getting it all along.


  • SK
    Jan 19, 2013 - 12:42AM

    Dear IMF, let this doomsday come please- we, the masses of Pakistan, are already suffering doomsday everyday, your elm only serves the corrupt “leaders” and help them reinforce their coffers so don’t fool masses anymore for these leaders’ sake, leave us alone, probably then these leaders will leave us as well when they find that there is no more blood to suck


  • shahid
    Jan 19, 2013 - 12:49AM

    people of Pakistan has to choose betwee military government with prosperity or democracy with poverty. So called democracy can not give public any relief.


  • John B
    Jan 19, 2013 - 12:53AM

    Did PAK not hear all these about two years ago? I remember the massive resistance among political parties when tax system was reorganized and had to be abandoned and so was the issue of massive energy subsides.

    To help PAK, IMF should wait until the new government is formed. This could also be an incentive for PAK to form a good government.


  • Bangash
    Jan 19, 2013 - 12:55AM

    Please don’t devalue the currency further… only benefits exporters but makes everything more expensive for poor Pakistanis who earn and buy stuff in rupees that is imported via dollars.


  • Majid Urrehman
    Jan 19, 2013 - 12:56AM

    When given a chance in the 1990s to govern Pakistan, PMLN more than delivered on all fronts. Major reforms took place in the banking sector, taxation, foreign exchange regulations, the telecom sector, import and export, aviation industry and other segments of business saw unprecedented growth. There was a major thrust on privatisation and deregulation. As a result of this, the economy boomed with a GDP growth of eight per cent in 1992 — the highest for any civilian government since independence.
    Although taxes were lowered for all segments, including the corporate sector, by 1999, Pakistan had achieved a tax-to-GDP ratio of 13.4 per cent, which has now fallen to just nine per cent and is a major stumbling block towards investment in social sectors as well as infrastructure projects. On the foreign relations front, major policy initiatives were undertaken, including the peace process with India, culminating in Indian prime minister Atal Bihari Vajpayee’s visit to Pakistan in February 1999 and the signing of the Lahore Declaration. If the Kargil adventure had not taken place, the Lahore Declaration would have enabled Pakistan and India to forge closer trade and economic relationships with millions on both sides of the border benefiting from the economic boom.


  • Jan 19, 2013 - 1:52AM

    The IMF officials name is misspelled in the caption. It should read “Franks” with an s and not “Frank”.


  • Asim
    Jan 19, 2013 - 1:54AM

    Well, to me these loans have not done any good to Pakistan in the past, current…and i m sure not in future as well. Pakistan should learn to stand on its own feet. These difficult terms may sound heavy to digest and understand….in reality the situation is not different to a economy of a Company. More loans less net profit….less net profit….less opportunties for growth and investment….

    Pakistan has to come out of this IMF and World Bank dangle, and a start living on its own resources….

    other wise even they give 1000 Trillion US dollars….Trust me we wont have growth of one inch….and nation wont be richer more than a dime…all money will go to the same place where its going at the moment…

    Say No to Loans..!!!!!! is the only way forward…thanks


  • Jibran
    Jan 19, 2013 - 2:01AM

    Pakistanis continue to defy taxes, while having a huge appetite for the subsidies.


  • Baba Ji
    Jan 19, 2013 - 2:06AM

    No thanks … we don’t need your loans … we are fine … you please take care of your Europe first !!!


  • Sufi
    Jan 19, 2013 - 2:10AM

    With the dollar hitting 100, soon the world will see a new stereotype; an avid pakistani shopper standing next to a chinese, just window shopping. The former doing it because of low purchasing power while the latter just helpless against their habits.


  • John B
    Jan 19, 2013 - 2:19AM

    In US, it is well and good. Look at the US treasury bonds.

    It is not the level of government debts that is bothersome but the govt ability to repay and the means to repay it. Most of the US debts are domestic obligations and there are many ways to pay for it.


  • Jan 19, 2013 - 2:27AM

    It says in the very first paragraph that he’s the Middle East and Central Asia specialist. Western economies are not his area of interest.


  • nabi
    Jan 19, 2013 - 2:32AM

    make india your best friend,leave behind all claims on kashmir,make loc a permanent boundry and see how the gdp grows. pakistan will become switzerland of asia.


  • gp65.
    Jan 19, 2013 - 2:32AM

    @meekal a ahmed:
    Sir, you ae the guru, so I wanted to check with you. Pakistan has domestic savings of around 12.8%, there is practically no FDI or portfolio investment, as much as 2% of GDP growth is being lopped off due to energy crisis, there is a challenge in private credit growth due to the large fiscal deficit and I have no doubt that the security situation also imposes sinificant inefficiencies on the economy. How then is IMF expecting 3.5% growth? How could Pakistan be operating under such an efficient ICOR under such adverse circumstances?

    Am I missing something?


  • pin
    Jan 19, 2013 - 2:33AM

    imf wants to give loan quickly to caretaker govt as they are scared the next elected govt may refuse loan bondage.


  • ballu
    Jan 19, 2013 - 3:02AM

    Thanks so all powerful military and ISI… pakistan se zinda bhag……


  • numbersnumbers
    Jan 19, 2013 - 3:19AM

    Once again, IMF funds come from contributing countries, who are not going to ask their own taxpayers to bear Pakistan’s money burden when Pakistan has one of the lowest tax to GDP levels in the world due to tax avoidance by the rich and powerful!
    Rich elites in Pakistan pay next to nothing in taxes due to various exemptions they give themselves through their control of the government (while claiming to represent THE PEOPLE (ie, the SUCKERS))!
    I think it is laughable that so many elected officials are on the “paid no taxes” list! you would think that those issueing the paychecks would have noticed that no taxes were deducted!


  • meekal a ahmed
    Jan 19, 2013 - 3:25AM

    @John B:

    The exact timing of the next balance of payments crisis is not in our hands. It may come in six weeks or six months.

    Shahbaz, I apologize if I sounded harsh. I did not mean to sound that way and I respect you as a competent economic analyst and enjoy your writings. And I was flattered that you came to my seminar at PIDE where I was struck by your youth. I thought you were an old goat like me.

    But I don’t know who told you that IMF loans (or WB and AsDB loans) can be re-sheduled. When Pakistan has received re-scheduling (and that has happened many times which creates a huge moral hazard problem in my view), it has always been bi-lateral loans.

    So before making the dramatic announcement of the “final blow”, perhaps you could have gone to the IMF website and checked it up? Or just Google it?


  • kHaN
    Jan 19, 2013 - 3:41AM

    Waiting for Imran Khan’s statement saying he could rescue Pakistan from this economical crisis in just 90 good days!


  • H. Khan
    Jan 19, 2013 - 9:30AM

    Pakistan is in big economic mess. A large part of the problem is low tax base and gross in-efficiency of FBR. What do you do to a country when only about 15,000 non corporate taxpayers pay more than Rs 5,00,000 per year as tax. And only about 16,000 are Sales Tax payment filers.
    Unless FBR is cleaned up of dead woods and of corruption, like a bad night mare economic crisis will keep hitting Pakistan
    In theory USA,UK/Japan/EU tax payers are paying taxes for Pakistani’s who do not pay tax…….this is called Grants/aid from USA/UK/Japan/EU


  • Manju
    Jan 19, 2013 - 9:54AM

    Hearty congratulations from India!!


  • Bala
    Jan 19, 2013 - 10:59AM

    IMF wants Pakistan to stand on its feet ..look at its plan – increase tax revenue, decrease spending, do energy reform …which part of these are not pakistan standing on its feet ? Pakistan is asking money for standing on its feet … understandable…IMF will give money …but pakistanis please do not fool yourself …


  • Anserali Khan
    Jan 19, 2013 - 12:12PM

    The present economic team and mess at FBR has lead to this economic crisis.
    Low tax base and inefficiency and corruption at FBR is responsible for low tax to GDP ratio and fiscal gap.

    IMF will give another loan (soon) to Pakistan as IMF cannot afford to let a nation of 190 million comit soverign default


  • ishrat salim
    Jan 19, 2013 - 12:29PM

    @Majid Urrehman:
    And during its last days…it requested ” dollar bhego mulk bachao “..millions were remitted…where did all that went ?.why would that have happened if everything was well on all front ?


  • Parvez
    Jan 19, 2013 - 12:56PM

    The economy is deliberately mis-managed (loot, plunder and waste) so that we have to seek loans to survive. The IMF willingly (despite the added drama) gives credit because it gets paid and makes money from situations like Pakistan.


  • meekal a ahmed
    Jan 19, 2013 - 1:08PM


    No, I don’t think you are missing anything.

    If gross investment is 12.8% and the IMF estimates that GDP growth is likely to be 3.5% then the implied ICOR is 3.66. That is not something to be very pleased with.


  • This is the most dangerous issue for Pakistani survival and nobody heeds on that, nobody talks about that, what a pity!

    No long march for it, no dharna, no coalition, no conference nothing for Economy and anti-begging policy.

    Media is also not making an issue for this huge issue, Alasss…….



  • Waleed
    Jan 19, 2013 - 1:19PM

    apparently our illiterate citizens are too dumb to understand this. So its basically a NO USE news for pakistan.


  • israr
    Jan 19, 2013 - 1:21PM

    each year, energy shortage costs 35 billion dollar to Pakistan’s economy and no new program on agenda for next 3 years will further worsen the situation. second major issue is the corruption in Tax sector and again govt. failed to increase Tex net…..just by solving these two issues,,, Pakistan can come out of crises in 2 years… Pakistan’s problem are not because of international crisis but these crises are due to poor governance and mismanagement


    Jan 19, 2013 - 1:44PM

    @Baba Ji: Classic delusional thinking!Recommend

  • Salman
    Jan 19, 2013 - 2:08PM

    Loan can easily be repaid. IMF is a snake we need to kill at our doorstep.Recommend

  • urawal
    Jan 19, 2013 - 2:31PM

    Create War like situation on borders.
    Scare the common man
    Get all the Funds diverted to Military
    Enjoy the funds and luxuries

    Debt/IMF issues are bound to come…


  • Blithe
    Jan 19, 2013 - 2:39PM

    IMF prescription in weakening pkr and tightening interest rates is no good ,

    PPP has brought us to this ….


  • Enlightened
    Jan 19, 2013 - 3:42PM

    The economy always grows better in a conducive atmosphere and right fiscal policies in place. Pakistan has to get rid of its so called assets and sectarian killers before thinking of a booming economy. Defence analysts and economists both are painting a dooms day scenario which is real bad news for people of Pakistan.


  • Jan 19, 2013 - 3:46PM

    Dear Jeffrey Frank, be ready for the charge of endangering democracy from Pakistani politicians.


  • DevilHunterX
    Jan 19, 2013 - 4:06PM

    Thank you PPP. 5 more years!


  • Butt
    Jan 19, 2013 - 4:08PM

    Another bowl in hand?


  • Jan 19, 2013 - 5:52PM

    ” Please don’t devalue the currency further… only benefits exporters but makes everything more expensive for poor Pakistanis who earn and buy stuff in rupees that is imported via dollars.”

    Any currency is devalued/ appreciated by its own people. . It is like a demand supply situation. If more foreign exchange can be brought in than its demand in the country value may get appreciated too. No role of IMF / world bank / any body else but the economy of country itself.



  • andleeb (canada)
    Jan 19, 2013 - 7:25PM

    The real issue is not the economy. It is Kashmir ! We are a nation of brave warring people, not tradesmen. Wake up my Pakistani brothers !!


  • Yoghurt lover
    Jan 19, 2013 - 9:45PM

    Vote for Imran Khan.

    Pakistan will have 10% growth in 90 days.


  • Khan
    Jan 20, 2013 - 1:38AM

    @Yoghurt lover:

    Vote for Imran Khan. Pakistan will have 10% growth in 90 days.

    Wrong … Imran Khan will turn around the situation in 90 days and Pakistan will have GDP growth of 90% according to his 90 lucky number. We will have perfect population growth control better education and better economy.


  • numbersnumbers
    Jan 20, 2013 - 1:48AM

    @andleeb (canada):
    Wow, so when are you returning from Canada to lead the fight for Kashmir? The country needs brave warriors like you to lead the charge and take the first bullet with HONOR! NOT!!


  • numbersnumbers
    Jan 20, 2013 - 2:31AM

    You say that “(IMF) loan can easily be repaid!! Please tell us how since Pakistan cannot even pay its own bills now without resorting to the begging bowl!


  • janan
    Jan 20, 2013 - 2:54AM


    You cant seriously compare pakistan with EU/US/GB! We have to have a growth rate of 6-7% if we are to reduce poverty! Consumerism wouldnt do the trick!


  • janan
    Jan 20, 2013 - 3:02AM

    @Yoghurt lover:

    ..or was it a 90% growth rate in just 10 days!? Jokes apart, once IK brings back the looted money and start collecting taxes, Pakistan would turn into Switzerland! Budget defecits, growth rates, subsidies is just boring stuff and a majority of the people wouldnt understand it anyway!


  • Hassan Masud
    Jan 20, 2013 - 6:06AM

    For some of the readers here, I recommend a book called “confessions of an economic hit man”


  • Jim
    Jan 20, 2013 - 6:45AM

    What nonsense. Pakistan is a sooperpower. It has the bum. It does not need ADB or IMF or World Bank. It can live on grass and hot air.


  • zarrar
    Jan 20, 2013 - 9:53AM

    whatever mr jeffry franks has said is right, perhaps, in the present circumstances. we should not let the history sidelined. we have to live in our own geopolitical scenario. nation should see what kind of ppl they want to select and should get off the couch and do some real participation in that regard. why stupid politicians who have handful of ppl at their support deny nation of cheap energy, after building the kalabagh and other proposed dams, former being the most legible candidate being low in cost and ready for starting work. nation is not willing to catch ppl behind this political ghimik who want to put this nation to get more loans for constructing dams which are high cost projects. also RPP mismanagers if i dont say the corruptors, if even they are the mismanagers how such stupids could rise to such post. i am also in favour of PMLN and Imran. but these should set aside their personal egos and sit to bring this nation to a good start. we cant survive puting aside the history, ie. kashmir and mind it its just not something. its human beings we are talking also we cant survive with a poor defence, if my fellow Paksitanis read history, unbiasedly. so solution select good ppl. and pressure for good economic management after resolving energy crisis.


  • Enlightened
    Jan 20, 2013 - 10:42AM

    @Yoghurt lover:
    Well said, Imran has also promised to root out corruption and terrorism in 90 days. Why not make him care-taker PM before the general elections and get rid of all the problems facing Pakistan ?


  • Sexton Blake
    Jan 20, 2013 - 11:02AM

    Dear Numbers,
    I quite agree with you in regard to the Pakistan elite not paying their fair share of taxes, and it is most unfair, but why should they be any different from the elite anywhere? I am fairly familiar with the US, British, Australian and Canadian tax systems, mainly because they speak English, and their elite do not pay their fair share of taxes either. As for the IMF giving advise I put up my hands in horror. It is the equivalent of a conman duping a client, but advising him to be honest.


  • Pharell
    Jan 22, 2013 - 3:31PM

    The GDP growth of PAK is expected to be 3.5%! What!


  • numbersnumbers
    Jan 23, 2013 - 5:58AM

    @Sexton Blake:
    In the US, recently the top 10% of income earners paid around 71% of all federal income taxes collected, while the bottom 50% of income earners paid some 2% of all federal income taxes collected!
    You say that the elites in the US (among other countries) “do not pay their fair share of taxes either”! Then Please tell us what you think the US elites FAIR SHARE should be AND provide us some statistics on what the ELITES in Pakistan pay by comparison!


  • Sexton Blake
    Jan 23, 2013 - 11:42AM

    Dear Numbers,
    You must be drinking the Kool Aid again. You obviously have a different way of measuring elitism from me, so all I can do is give you a few examples. Exxon Mobil, possibly the most profitable organization in the US made a profit of $30.5 billion, but only paid 17.6 per cent tax. The average American pays 20.4 per cent. Additionally, only 6 per cent of Americans earn in excess of $100,000. We could go into the disgraceful US banking system, which transfers billions of into fraudulent derivatives and then requires a Government bail-out. We could investigate the transfer of American jobs overseas (mostly to china), for the betterment of the elite, but which has lowered living standards for the average American, and certainly damaged American infrastructure. We could also investigate transfer of funds into tax havens. Something American elites are quite famous for. A prominent example of this was Mitt Romney’s admission of his depositing $30 million in the Cayman Islands, a renowned tax haven. These are just a few minor items, but they may help you to understand what is happening in the top echelons of society.


  • Anurag
    Feb 5, 2013 - 8:54AM

    They are not collapsing like you guys! Pakistan wll crumble and cease to exist in about a year. I am an insider at Goldman and I have seen reports.


  • Anwarpal Singh
    Feb 14, 2013 - 9:43AM

    Even though I’m from India, I think I can give a piece of advice to fellow Pakistanis as neighbors. I’m amazed to just hear that Pakistani economy is going down when it is I’d say in one of the world’s most important geopolitical locations! OMG guys you are between India and China! 3rd and 2nd biggest economies of not only Asia but world (GDP PPP)!!!! Both having over billion people! Here’s what you need, a good warm relationship with India and China, at present Pak- China relationship is just because china has a backup support not because of trade! If Pakistan has superb relations with India and China then you Pakistani people will get tired producing but the hungry- growing -billion- people strong- middle -class won’t stop asking for more at least for near future. Awwwwe how much I wanna visit west Punjab btw I’m from Indian Punjab.
    Take cares


  • Anwarpal Singh
    Feb 14, 2013 - 9:45AM

    Even though I’m from India, I think I can give a piece of advice to fellow Pakistanis as neighbors. I’m amazed to just hear that Pakistani economy is going down when it is I’d say in one of the world’s most important geopolitical locations! OMG guys you are between India and China! 3rd and 2nd biggest economies of not only Asia but world (GDP PPP)!!!! Both having over billion people! Here’s what you need, a good warm relationship with India and China, at present Pak- China relationship is just because china has a backup support not because of trade! If Pakistan has superb relations with India and China then you Pakistani people will get tired producing but the hungry growing billion people strong middle class won’t stop asking for more at least not in near future.


More in Business