Tough times ahead for Pakistan as talks with IMF fails

Islamabad: Tough times are ahead for Pakistan as Islamabad and the International Monetary Fund (IMF) have failed to reach a staff-level agreement on a much-needed USD 1.1 billion bailout package aimed at preventing the country from going bankrupt.

Analysts believe that the current economic crisis in Pakistan is a culmination of decades of faulty policies, reported The Al Arabiya Post.

Pakistan is seeking a USD 7 billion bailout package from the IMF to prevent the collapse of the economy. While the visiting IMF delegation is asking for several reforms and compliance with its conditionality.

The IMF mission, led by Nathan Porter, began talks on January 31 with the Pakistan government represented by Finance Minister Ishaq Dar for the ninth review of the assistance package.

PM Sharif, while addressing an apex committee meeting in Peshawar following Monday’s mosque bombing that killed over 100 people, said, “As I speak, the IMF delegation is in Islamabad and they are giving Finance Minister Ishaq Dar and his team a tough time.”

Notably, the resource allocation pattern in Pakistan from one budget to another puts a disproportionate focus on populism and militarization. This has put an additional burden on its exchequer leading to an unsustainable fiscal gap, reported Al Arabiya Post.

Pakistan Prime Minister Shehbaz Sharif said on February 3 that the International Monetary Fund (IMF) was giving a “tough time” to his country over the restoration of stalled bailout package at a time of “unimaginable” crisis.

Shehbaz Sharif admitted that the country has no option but to accept the IMF conditionality. “You all know we are running short of resources,” Sharif said, adding the country was “facing an acute economic crisis”.

Moreover, the Pakistani rupee, which has been in a steep slide since last week, hit a record low against the US dollar. The Pakistani rupee fell by 1.9 per cent to a record low of 276.58 per dollar in the inter-bank market the same day, according to the Central Bank, reported Al Arabiya Post.

As the IMF bailout package is conditional on Pakistan implementing IMF suggested measures, its release would require Islamabad to take tough decisions.

After the first round of technical talks between the IMF team and the government concluded on February 4, Pak Prime Minister observed that the lender was imposing conditions that were “beyond our wildest dreams”.

The discussions covered details of expenditure and revenue performance to identify the policy measures- both revenue and non-revenue- that would have to be taken over the next four months of the current fiscal year. The Pak Prime Ministered, despite calling the IMF conditionality unimaginable acknowledged that the country had no choice but to implement the conditions.

It has been seen that Islamabad has a policy obduracy and inertia that prohibit it to shun its populist policies and take reform measures on debt, fiscal, trade and structural fronts to address its economic woes, reported Al Arabiya Post.

Analysts opine that the rocky road Pakistan is passing through is its own creation. In the first instance, a debt-dependent growth strategy is itself a sure recipe to fall into a debt trap, especially when industrial growth and diversification are limited and the export basket is primarily made up of primary goods.

The debt dependence has also eroded the sovereignty of Pakistan and the country’s economic and foreign policies are dictated by those who provide funds. Such dependence on external funding has impeded the structural transformation of the Pak economy and its indigenous growth impetus.

Secondly, an artificially designed threat perception in Pakistan created by the vested interests in Islamabad’s establishment has totally distorted the allocation of resources in the country giving undue emphasis on militarisation in the name of preparing for a threat that does not exist.

The third most remarkable flaw in Pakistan’s economic policy is a deliberate and foolhardy choice of missing the development opportunities generated by free trade, reported Al Arabiya Post.

While Pakistan has a good location to leverage the presence of two giant economies in its neighbourhood, it has opted to isolate one of them and sided with the other at the cost of huge losses in trade creation.

Not giving the Most Favoured Nation status to India and keeping the trade routes closed for direct trade is a self-defeating proposition.

Islamabad could no more avoid taking hard decisions. The situation continues to deteriorate. With only around USD 3.10 billion in foreign exchange reserves, which can only cover 18 days’ worth of imports, and a shortage of basic goods including food and medicine and ever-spiralling inflation, the choice to comply with the IMF conditionality would not be easy for Pakistan.