Though it is no excuse for their clumsy economic management thus far, the new government inherited a sobering economic situation. There was a burning need to secure $12 billion+ in forex to bridge the external financing gap for the fiscal. As no one funding option was enough to fill that void, the circumstances required a mélange of IMF bailout, bond floatation and borrowing from ‘friendly’ countries.
Recourse to IMF is fraught with political risks almost everywhere. In Pakistan, opposition’s claim of breaking the begging bowl is shown for what it is, rhetoric, when it comes to power. Going to the IMF this time also had geopolitical connotation. The US administration, with an eye on China, had signaled in late July that it might come in the way of an IMF loan to Pakistan. That veiled threat had broader connotations: IMF, a multilateral institution, could risk getting in the middle of US-China rivalry.
Nearly two months into office now, the PTI government has done well in setting a conciliatory tone with the US. A broader ‘reset’ may not come soon, but Pakistan now feels confident in reaching out to the IMF, hoping that geopolitics won’t come in the way. Besides, better US-Pak relations might also help Pakistan find breathing room at FATF, which is reviewing Pakistan’s progress on AML/CFT recommendations until September 2019. A less than hostile review can help Pakistan avoid getting blacklisted.
While the IMF financing is near certainty, what looks rather striking is that friends in the Gulf have been unable to meet monetary expectations, despite being showered much attention lately. Looking for financial assistance, the PM had chosen Saudi Arabia for his first official visit, followed by a touchdown in UAE.
Three weeks and a few diplomatic faux pas later, the government’s top spokesperson has reportedly suggested that the two countries put unacceptable conditions to provide money.
Grants are seldom without strings attached. Pakistan will be better off in the long run without a bailout that forces it to choose between Iran and its Gulf rivals, or to send its personnel to fight in regional battles. As there is no free lunch, the government would be wise to negotiate any grant/investment agreement in national interest. It is time to put the economic house in order – with or without IMF; with or without grants.
Meanwhile, Pak-China relations could use a little warmth. Barring a few statements, the PTI government has unequivocally expressed its support for CPEC. But news reports suggest CPEC is undergoing a careful review process. With a key BRI country going to the IMF, China cannot be too happy with its investments there coming under such a review and the word getting out. The PM’s China visit, reportedly scheduled a few weeks from now, should clear things up and work to boost the longstanding ties.
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