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EDITORIAL: The IMF (International Monetary Fund) Staff-Level Agreement (SLA) is still awaited. State Bank of Pakistan’s (SBP’s) forex reserves are a paltry $4.3 billion, and there is no clarity about external debt repayments, which have yet to be promised to be rolled over in the next few months.

There is also a backlog of payments of imports goods (stuck at ports) and services; and profit repatriation payments that have been in the queue for a long time.

Apart from these, there is a need for essential or critical imports. Without these essential items, life in the country would possibly come to a standstill. This is indeed a huge challenge, to say the least. And even if the Staff-Level Agreement (SLA) is reached, it will be a lifeboat till June.

The question is what will happen next? The IMF is pressing for financing assurances from the friendly countries. Without building up or boosting reserves, even the IMF tranche and other arranged sources would be insufficient to fully overcome the challenge of looming default.

The friendly countries are more interested in making investment, and that money will come in slowly with an impact in the medium to long term. However, the money ($2-3 billion) must flow in before the IMF board’s approval. The SLA is waiting for these assurances.

Meanwhile, the government plans to maintain the essential imports, particularly in case no inflows come in. The country can only service external debt with new debt or non-debt capital flows.

Therefore, foreign exchange earnings (exports and remittances) must be used for imports by keeping the current account forcefully in balance. And once the debt moratorium is applied, opening LCs would be extremely difficult, if not impossible. Currently, in some cases, foreign banks are not confirming oil LCs, while others are charging a premium.

In the event of default, there are implications for exports as foreign banks’ relations with companies doing business in Pakistan will become strained, which could also hurt exports. The growing energy costs and impediments to importing raw materials will also impact exports.

Already, the hit is visible in textile and other export-oriented sectors. And finally, the gap between interbank and open markets, black and interbank markets and black and open markets will further widen, hitting the flows of workers’ remittances through official channels.

Under these circumstances, according to a Business Recorder report, the government requires $8.5 billion to meet its import needs between March and September — the money will be spent on crude oil imports, petroleum imports, LNG imports, and some parts and machinery imports.

The plan appears to be essentially aimed at energy imports. In 1HFY23, the petroleum group imports stood at $9.3 billion, and the estimates of these imports for the next six months are $8.5 billion as prices and consumption fall.

However, the government would also need other essentials’ imports and require certain industries to function and keep the economy afloat. The government must come up with some austerity measures to lower energy imports by shortening the working week and applying daylight saving measures.

The increase in the tariffs of petroleum and electricity would reduce the demand for these, and the forced slowdown in imports will suppress the industrial energy needs. The government may develop load-shedding plans of at least 6-8 hours in urban areas.

That these are extraordinary times is a fact. Needless to say, extraordinary times call for extraordinary measures or steps. With every passing day, not only is the number of jobless people increasing, inflation is also rising.

Against this backdrop, further curtailment could be very painful. That is why a deal with the IMF is of paramount importance; and the following year’s plan must be charted out carefully.

Unfortunately, however, the challenges are only mounting and they are likely to mount further in the protracted absence of political stability.

Copyright Business Recorder, 2023


Comments are closed.

Haq Mar 18, 2023 11:38am
It's time to declare bankruptcy, shut the non-essential govt departments & all loss making SOEs down. Declare financial emergency, dissolve Parliament, Senate, remove president, governor, prime / chief ministers, ministers / advisors / special advisors, confiscate all state owned residences & vehicles. Cancel IPP agreements (that have capacity / US$ payments). Recall extra embassy staff. Install interim committee of honest people (excluding foreign agents) to implement Islamic Sharia...
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Love Your Country Mar 18, 2023 12:05pm
We are being black mailed in a slow manner
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Shiteistan Mar 18, 2023 12:53pm
@Haq, and become "Afghanistan model 2", or better, the "Mother of all Afghanistan's".
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Abdullah Mar 18, 2023 01:31pm
Political economics has no defaults. Nice career option for millions of youngsters
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Muhammad Kashif Mar 18, 2023 01:44pm
Q: why "friendly countries" are not interested in Pakistan IMF deal? Ans: there are two major reasons 1) the friendly countries are still undergoing harsh impacts of COVID-19 and Russia Ukraine war. 2) they have started regarding Pakistan a "burden" not a friend. Therefore they are afraid of their debts. In short friendly countries are interested in business but not in donation.
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TimetoMoVVeOn Mar 18, 2023 03:32pm
@Love Your Country , no one is blackmailing you. ImF is seeking assurance from Your friends that they will cover the difference. And your friends are not coming through. You don't have to go to imf. You can ask China instead
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wanker Mar 18, 2023 07:24pm
The IMF wants us to curtail our nuclear program but our leaders have said no to that. So we will never get an agreement. We are headed towards default.
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TimeToMovveOn Mar 19, 2023 12:43am
@wanker, This is hogwash. The IMF has nothing to do with the nuclear program. This was just one of those things that are made up by your useless politicians. Your country does not have credibility, that is why IMF is not giving you money.
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Dad Mar 19, 2023 11:30am
Dont go to imf. Go to people Talk to 80 percent people. They will sacrifice everything to save their country. When 80 percent stop eating dollars finance will rise 80 percent..20 percent are always ready to leave to mars
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Arfan qasim Mar 19, 2023 01:02pm
The government is not worried, they have important task of keeping khan out of politics. Of course, not forgetting, bring mariam, and mian sahib back in office. So they can hammer the final nail in the coffin.
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Arfan qasim Mar 19, 2023 01:07pm
@Love Your Country , no, the truth is, corruption of 75 years. Is bearing fruit. Shame on our rulers, who have destroyed us, and our nation. So their kith and kin can have the best of best. May Allah almighty make the example of them, in this world and next.
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Arfan qasim Mar 19, 2023 01:09pm
@TimetoMoVVeOn, enen china is fed up of, double policy. Don't worry, the current government, will blame the previous, as always
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Arfan qasim Mar 19, 2023 01:09pm
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Taimur Khan Mar 20, 2023 02:30am
@TimeToMovveOn, our country has credibility. Our present government doesn't but it was installed by dubious means & perhaps thru external agency. However, the entire Western bloc has zero credibility with the world. With a horrible colonial past, they r now piling climate misery on us thru their reckless carbon emmissions for which Pakistan is paying??? They deal with third world dictators & siphon our peoples' money to panama & jersey & into the city of london or new york yet noone accuses them of laundering money. They change regimes that lead to civil wars e.g. angola and millions of deaths. Their actions have killed millions of kids across the developing world. They hold 95% of the wealth and 95% of the media. China and russia holding 1/3rd of the world is also a horror....they are empires and act like it. India is no better and more radically jingoistic. So if I were you I would think again on credibility. None of you chaps have any.
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Love Your Country Mar 20, 2023 08:43am
@Arfan qasim, the Top2 spot-holders in the corruption list of the past 75 years are protecting their identity well. Died in the UAE, buried in the homeland with full honours, what's our future?
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Ansar Ahmad Mar 20, 2023 09:35am
@Haq, everything you said was possible , except for the word "an interim committee of honest people".. that is our most scarce resource, honesty
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bonce richard Mar 20, 2023 05:32pm
@Muhammad Kashif , They are interested in business. But our COAS and Mr. Chor Shahbaz always go to Arab countries for charity and Zakat Fitra for himself and the Punjabi army who raped our women in 1971. Keep in your mind when Punjabi dominate the country our country never stands by its own leg.
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bonce richard Mar 20, 2023 05:34pm
@Love Your Country, Time is coming we will give them everything to them as they wish.
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bonce richard Mar 20, 2023 08:40pm
@Dad, First of all, fix our army then our country will be developed. The army also involves politics and making money in the name of Islam and Kashmir. Did our army capture Kashmir? Keep in your mind always dream and nothing to have come in your hands.
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Dr fahad Mar 21, 2023 02:40pm
@bonce richard, go comment on Indian website
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