Going up in smoke: Pakistan’s promises to IMF in doubt

Investors lose confidence while political saga unfolds.

Reuters September 03, 2014


Anti-government protests that have gripped Islamabad since mid-August could throw off course economic reforms Pakistan promised to deliver in return for an International Monetary Fund (IMF) bailout, senior officials said, raising the risk of a sovereign rating downgrade.

The IMF saved Pakistan from possible default last September by agreeing to lend $6.6 billion over three years, conditional on reforms such as a longstanding pledge to privatise loss-making state companies.

There is no suggestion that the assistance, which is disbursed in tranches, is about to dry up.

“The programme is not in jeopardy at the moment,” said a top economic adviser with direct knowledge of talks with the Fund. “The IMF folk think that if we can wrap this crisis up in a week or so, things will remain on course and normal. But if it goes on any longer, then, yes, we will be in trouble.”

Commerce Minister Khurram Dastgir Khan voiced concern that an IMF team had already cancelled a visit to Pakistan because of the protests that turned violent last week as Prime Minister Nawaz Sharif refused to resign. He said more than a year of efforts to fix the economy had ‘gone up in smoke’.

For now, credit ratings agency Standard & Poor’s is watching events unfold in Islamabad, currently it has given a B- sovereign rating for Pakistan.

Investor confidence melts away

Investors have taken fright over the agitation against Sharif, who won a decisive victory in May 2013 elections, the first democratic transition in Pakistan’s turbulent history.

Since Imran Khan announced on August 5 that his supporters would besiege the capital, the benchmark 100-share Karachi Stock Exchange index has fallen more than 7%, but recovered some of that on Tuesday, and the rupee has lost 3.4% against the dollar.

Two foreign heads of government have cancelled visits to Pakistan due to the protests, and Sharif himself has called off a trip to Turkey. The worry now is that they could ruin a visit this month by Chinese President Xi Jinping.

“We want to set up many energy plants and electricity projects in Pakistan in partnership with Chinese corporations which may also be disrupted.”

Commerce Minister Khan said the bidding process for an energy park of 10 coal power plants has been postponed because investors are unwilling to commit to the country in the current political climate.

“People are living in abject poverty, without education and health and roads and water, but Imran Khan wants power at the centre,” the official said. “These protests have totally botched up our priorities.” 

Published in The Express Tribune, September 3rd, 2014.

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