Pakistan is in the final stages of negotiating an International Monetary Fund (IMF) bailout to the tune of 6 to 8 billion dollars, with experts assuming it will now be more likely after Prime Minister Imran Khan has reshuffled his economic team.
Following the removal of the governor of Pakistan’s reserve bank, PM Khan has installed an economist from the IMF in his place, a move that has drawn a wide range of criticism from opposition parties.
However, economic experts believe that the new team would be in a better position to translate the IMF’s message to the government.
Pakistan is in need of the financial aid to ease a balance-of-payment crisis triggered by high fiscal and current-account deficits and shrinking foreign exchange reserves.
Since its creation, Pakistan has already taken over twenty IMF support packages. The country has thus been one of the most extensive recipients of the IMF resources in the past, but this time many are sceptical of its use of the facility.
Dr Ashfaque Hasan Khan who is a member of the Economic Advisory Council of the Government says, “I was against Pakistan going to the IMF. The reason is that in the past when you went to the IMF, you were standing on the right side of United States, since 2000 onwards, Pakistan was termed as a non-NATO member ally country. This was our status with the United States, but today we are standing on the wrong side of the United States, because the US wants to counter the rise of China, and we are standing with China through the Belt and Road initiative and CPEC so that is why we are on the wrong side.”
The US secretary of state Mike Pompeo has said, “Make no mistake we will not allow the IMF to lend money to Pakistan to repay the Chinese debt.”
Observers have warned that the fresh IMF deal may come with a number of restrictions, and it is hard to guess if they will go down well with PM Khan’s vision of building an Islamic welfare state.
Many have warned of the West’s interference in Pakistan’s affairs as the geopolitical alliance shifts from the US to China.
Dr Ashfaque also recalls Khan’s statements when he was not in office, leading a powerful opposition: “When Imran Khan was in opposition, several dozen times he said that he will prefer to die instead of going to the IMF.”
As Pakistan negotiates the loan package with the IMF, the talks have already been interrupted twice in the past over various disagreements, including the exchange rate policy.
Dr Ashfaque says that the government had other options than going to the IMF. “We have many choices, yes there is an alternative if you look at the economic conditions that this government inherited. I think it is in a worse shape, according to my calculation. I said that if we make certain efforts and identify six or seven consumer-oriented items out of several thousand that we import and if you don’t import them for one or two years, it is not going to damage Pakistan. For example, cell phones and cars, alone could save about five billion dollars, and if we look at some food items such as chocolates and other items, we could save almost six billion dollars’ worth of imports. This will further reduce and bring our current account deficit under control, but it requires some effort.”
The rupee weakened significantly, almost 18% in the last year, becoming the worst performing currency in Asia.
Despite seeking financial help from friendly nations like China, Saudi Arabia and the United Arab Emirates, Pakistan’s economic crisis is far from being over. The government is facing slower economic growth and weak revenue collection, limiting its ability to spend.
Many believe that Pakistan has gone to the IMF as a last resort.
Humayun Iqbal Shami, the President of the Pakistan Economic Forum says, “If the IMF agrees with you, and we go into an agreement with the bailout package, then the other institutions, like the World Bank, Asian development bank and some other countries will also come to help, so the private sector investment will come to Pakistan, they will have certainty that Pakistan can bail out.”
Imran Khan’s government will announce its first budget in June.
Observers say that an IMF agreement could attract more stable financing by opening options for budget support from other lenders like the World Bank and the African Development Bank and improve access to bilateral sources and global capital markets.
In the past, there have been many periods where Pakistan excelled. The 1960s are regarded as the golden era of Pakistan’s economic development, when it was regarded as a role model for developing countries.
During the time of General Pervaiz Musharraff from 2000 to 2007, owing to a good team, a combination of technocrats and top-level bureaucrats, the country also witnessed significant economic growth.
Then, growth accelerated to 9% with an investment and GDP increasing from 12 to 22.5%, while today it is hovering around 14 to 15%. The majority of Pakistan’s population remains poor.
There are several reasons for it lagging behind other developing nations in the region.
Though its youth is educated and skilled, there are no jobs for them. The economy has slowed down and is in no position to generate jobs to accommodate these hundreds of thousands of people.
Experts say that there is a greater need for generating jobs in the agriculture and construction sectors through encouraging small and medium enterprises.
There is also a need for investing in the people in terms of education, health and technical education, in which way more trained workers enter the market and become productive citizens.
Only if these measurements are taken, Pakistan will be in a position to say no to the IMF or any lender in the years to come.