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Why IMF looks unavoidable?


News Analysis |

International Monetary Fund (IMF) team is scheduled to visit Pakistan on September 27 with a bailout package of $7.5 billion after clearance from the United States Secretary of State Mike Pompeo. On August 11, Pakistan’s Information Minister Fawad claimed that Secretary of State Mike Pompeo assured Pakistan last week that Washington would not try to block any request for a bailout from the International Monetary Fund (IMF).

Earlier, in a much-publicized statement, Mike Pompeo had said that United States has serious reservations over Islamabad’s IMF bailout. The US expressed its fear that Pakistan might use the cash extended under the package to return the Chines loans. It also blocked the $300 million of Coalition Support Fund only days before visiting the country.

Pakistan is in uncharted waters and faces the herculean task to ensure the financing requirements of $75 billion over next-three years. In spite of the help from friendly countries, it seems IMF program has become unavoidable. 

Pakistan requires staggering $25-27 billion to bridge the financing gap, per year, and the liquid foreign exchange reserves of the country have declined by $300 million last week and have been hovering around $10 billion. In these dire circumstances, Pakistan was looking to have a double-digit program. However, on the contrary, the IMF has apparently agreed to extend only $7.5 billion out of a quota of around $13 billion for Pakistan.

Read more: IMF programmes, institutional quality and export performance – Omer Javed

The country’s previous program worth $6.4 billion—which started with the Fund in 2013 was completed in 2016. The new government has decided to initiate an engagement process of with IMF. Pakistan’s Finance Minister Asad Umar has been criticized for delaying the most important decision on economy.

After the two weeks of deliberation and presentation spree, and cost-benefit analysis of going to the Fund, apparently, it is more likely now that PTI government has made up its mind to consult IMF. On the contrary, some political pundits have claimed that Pakistan is in talks with its close allies including China and KSA for the bailout. And, IMF may not be the option for now. It is believed that PM Imran Khan’s visit to KSA and China in this regard is of utmost importance.

The US expressed its fear that Pakistan might use the cash extended under the package to return the Chines loans. It also blocked the $300 million of Coalition Support Fund only days before visiting the country.

Government is also contemplating a plan to consult some of the financial institutions including Islamic Development Bank, and Asian Development Bank for additional funding to bridge the external financing gap. Pakistan faces a difficult financial situation, despite taking the staggering amount of loans in last decade or so. Ever-Shrinking foreign exchange reserves, the currency crises, and ever-increasing balance of payment gap have put the country on brink of financial collapse.

Read more: Not the IMF way – Omer Javed

The remedies available are limited, and IMF’s conditional loans can compromise Pakistan’s sovereignty. Although, Pakistani authorities did well to complete the IMF program in 2015, but, the problem of twin deficit—which was the primary reason to enter the program re-emerged and country failed in its challenge to reduce the deficit. And, again, now faces an uphill battle to finance this large deficit in absolute terms.

IMF emphasized on Pakistan to make it a priority to solidify the gains of the 2013 program, to stabilize the economy and to make them irreversible. The previous regimes failure to implement the recommended structural reforms and reckless borrowing has put the country back to square one. Pakistan is in uncharted waters and faces the herculean task to ensure the financing requirements of $75 billion over next-three years. In spite of the help from friendly countries, it seems IMF program has become unavoidable.

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