News Analysis |
United Arab Emirates’ Crown Prince Sheikh Mohammed bin Zayed brought along the breathing space which Pakistan’s economy was in need of. Out of $6 billion packages earlier pledged, courtesy of Prime Minister Imran Khan’s two visits to UAE, first $3 billion appear to have been materialized. The joint statement after the visit read that Pakistan is thankful to UAE for generous $3 billion support to avert the balance of payment crisis.
As per the initial media reports, incumbent government of PTI soon after it took power was eyeing a $12 billion bailout package from IMF before Prime Minister Imran Khan decided to reach out to Pakistan’s old friends. It was particularly a smart move as borrowing from countries pose different dynamics where services and favors could be used in exchange for debt servicing.
Until now the government is on “damage control” mode where the crux of these efforts is to get out of the whirlpool of the balance of payment crisis.
Since it would have been Pakistan’s 12 IMF program, the conditions pegged to money would have been far more restrictive for government to maneuver with its promised welfare agenda. Saudi Arabia was the first country to come to Pakistan’s rescue, primarily resulting due to Prime Minister Imran Khan’s decision of attending International Investment Conference “Davos in the desert” which was widely boycotted amidst Khashoggi saga.
Kingdom promised a total of $6 billion packages, $3 billion of which was to be paid in cash while the rest would have incorporated the deferred payments for one of Pakistan’s largest imports, petroleum oil. First $1 billion was received by State Bank of Pakistan in the first of three tranches in which the money was to be transferred.
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This money was particularly crucial for Pakistan to pay for its imports as well as serving its international debt obligations. By that time, the amount Pakistan was initially looking at from IMF was already cut to half at $6 billion on soft terms. After the United Arab Emirates and Saudi Arabia, Prime Minister Khan reached out to China for financial assistance.
This arrangement, in particular, was aimed much more than a simple transfer of cash. Due to the ongoing flagship mega-project, China Pakistan Economic Corridor (CPEC) of China’s Belt and Road Initiative in Pakistan, the balance of trade is quite worrisomely inclined in favor of China. Long term economic growth of a country depends upon how well the services and industrial sections are doing which means greater exports compared to imports.
It was particularly a smart move as borrowing from countries pose different dynamics where services and favors could be used in exchange for debt servicing.
China, along with announcing a $2 billion package, also hinted at importing more from Pakistan to help fix the balance of trade issue. Talks between the International Monetary Fund and Pakistani officials are underway since November 2018. An IMF delegation headed by Harald Finger came to Pakistan on from 7-20 November to initiate the formal round of discussions between both parties.
At the end of the first round, sources held that Pakistan is not willing to accept the package under the conditions which the IMF wanted to impose. However, Finance Minister Asad Umar said on December 4th, 2018 that negotiations are underway and there is still hope to bring the IMF to an agreement for somewhat more favorable terms for Pakistan.
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Until now the government is on “damage control” mode where the crux of these efforts is to get out of the whirlpool of the balance of payment crisis. The long term strategy to avert such a crisis from happening in future is yet to be seen. Pakistan being predominately an agriculture economy needs to focus on the latest agricultural techniques to extract yield as per international standards to help it reach to the international market to secure crucial forex reserves.
So far, overseas Pakistanis have been only driving force to the import-oriented economy of the country. It needs to be seen how the PTI government manages to take forward an economy whose growth, in terms of GDP, has for long been overstated due to government expenditures and private consumption.