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Looming clouds of economic uncertainty withering away

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Prime Minister Imran Khan met Christine Lagarde on the sidelines of World Government Summit in Dubai, expressing his opinion afterward that both governments of Pakistan and the International Monetary Fund are on the same page as per structural reforms. In what he called “convergence of views” in a tweet, he hinted at the sustainable development aimed that keeping the most vulnerable sections of society in the loop.

“In my meeting today with IMF Managing Director Christine Lagarde there was a convergence of our views on the need to carry out deep structural reforms to put the country on the path of sustainable development in which the most vulnerable segments of society are protected”, the tweet read.

IMF, in a written statement issued after the meeting, has said that it is ready to help Pakistan strengthen its economy. Citing the PTI government’s policy agenda, Lagarde said protecting the poor and strengthening governance were “key priorities to improve people’s living standards in a sustainable manner”. Though a broad understanding has been reached, still there is a lot which needs to be discussed and the proposed timeline for a bailout agreement is said to be reached by April with implementation starting from June.

The negotiations with IMF were run in the parallel with no clear insight into where both sides are standing vis-à-vis a bailout until the meeting between PM Imran Khan and Christine Lagarde.

PTI government inherited the balance of payment crisis once it assumed power. As predicted by most economic pundits, the IMF would have been the first destination to reach out for a bailout. Since it would have been the 22nd loan which Pakistan would have taken since its inception, the corresponding terms of the loan were likely to hurt the PTI government’s long-term economic goals.

It pushed Prime Minister Khan and his finance Minister Asad Umar to look for other options while deferring the IMF bailout so that soft conditions may be negotiated. Due to a decades-long partnership between Gulf countries and Pakistan, coupled with the regional geopolitics, both Saudi Arabia and the United Arab Emirates came to the rescue with $3 billion deposited in State Bank of Pakistan (SBP) to avert a balance of payment crisis for the time being.

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Second relief which Pakistan got was deferred Oil payments, one of the largest imports of Pakistan, for up to $6 billion. The negotiations with IMF were run in the parallel with no clear insight into where both sides are standing vis-à-vis a bailout until the meeting between PM Imran Khan and Christine Lagarde.

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Furthermore, the Saudi Crown Prince Mohammed Bin Salman is expected to visit Pakistan soon and it is speculated that he will be bringing the biggest Foreign Direct Investment (FDI) in the history of Pakistan. Saudi Arabia is planning to build a $10 billion mega oil refinery in Gwadar, which sits not far away from Iran recently functional Chabahar port, the archrival of Saudi Arabia. Other than the project itself, The Wall Street Journal reported last month that both Saudi Arabia and the United Arab Emirates (UAE), Islamabad’s biggest trading partner in the Middle East, have offered Prime Minister Khan some $30 billion in investment and loans.

Next fiscal year and budget would be the key to analyze the path which government might have adopted on the guidelines of IMF since by that time an agreement would be reached.

Political economic factors pushed the PTI government to pursue options which have certain geopolitical dimensions attached to it instead of an all-out IMF bailout which would have asked the government to limit its expenditure and it would have hurt the domestic political objectives.

Securing funds from Gulf countries also does not mean that the government will be able to pursue extensive welfare projects. As long as the economy does not get going and revenue generation via increased exports and broad tax base is streamlined, the government would not be able to undergo the sort of public welfare and social safety it has promised in the past.

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But it has certainly allowed the national economy much-needed breathing space for the PTI government to work with. Next fiscal year and budget would be the key to analyze the path which government might have adopted on the guidelines of IMF since by that time an agreement would be reached.

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