Back to IMF?

Within hours of PML-N government's exit upon completion of its five-year tenure, the Ministry of Finance, FBR and State Bank of Pakistan volunteered to make transparent the facts about the state of economy. Reportedly, the Ministry of Finance warned the caretaker prime minister that without the support of the International Monetary Fund (IMF), the country's financial survival was at stake and sought the caretaker prime minister's permission to engage in talks with the IMF. The caretaker PM was informed that the outgoing government has already exhausted its limit of obtaining foreign commercial loans in addition to floating Euro bonds to bridge the widening current account deficit.
In 2013, Pakistan's gross official reserves were $6 billion, equaling an import bill for two months. Today, foreign exchange reserves amount to $10 billion but are likely to deplete after the county makes payment against two months' imports. Also, it is projected that the gap between expenditure and revenue will be far greater than the revised target of 5.5 per cent of GDP or Rs 1.8 trillion. The deficit could surge above 6.5 per cent of GDP.
The interim prime minister was also briefed by the Federal Board of Revenue (FBR) and the Economic Affairs Division (EAD) in this regard. The PM was informed that the board would not be able to achieve the revised tax collection target of Rs 3.935 trillion.
The State Bank of Pakistan in turn also revealed that the current account deficit - the gap between external receipts and payments - has widened to a record $14 billion during the July-April period of the ongoing fiscal year. In its last assessment, the IMF evaluated that Pakistan needed a financing of $27 billion for fiscal year 2018-19 - beginning in July this year.
The IMF has projected a gross financing gap of $24.4 billion for outgoing fiscal year with the current account deficit projected at $15.6 billion. The current account deficit, which had already crossed $14.2 billion for first ten months (July-April) period, is likely to cross $16 to $17 billion till end June 2018. The IMF projections further showed that the available financing stood at $20.7 billion so the remaining foreign currency reserves would deplete further.
The caretaker government appears to have inherited massive fiscal challenges, notably, the budget and account deficits, a tax receipt shortfall, loan repayments, a high import bill and lower exports, rupee stability. Moreover, it is required to act upon the decision on the increase of petroleum prices left pending by the PML-N government, further escalating the fiscal deficit.
The caretaker government does not have the mandate to enter into formal negotiations on any policy matter. At best it can prepare the ground for the elected government to move on.
The discussion for the last bailout package of $6.2 billion had also begun during the previous caretaker set-up, but the deal for the programme was signed by the PML-N government in September 2013.
The newly sworn-in Minister for Finance Dr Shamshad Akhtar may opt for holding consultative level dialogue with the IMF under Article IV consultation and the Fund could be receptive to it. But the challenge which the caretakers cannot put to rest is the worrisome repayments of two tranches of IMF loans which the caretaker government has to manage, of which a $190 million amount is due in June 2018 while another $490 million will become due in the fiscal year 2018-19 starting from July 1, 2018.
The new elected government shall be required to manage $ 490 million of the IMF repayment due in September 2018 while the rest during its five-year tenure with a pay-back of $879 million in 2019-20, $1.158 billion in 2020-21, $1.174 billion in 2021-22 and $1.2 billion by 2022-2023. On top of this could be the burden of additional IMF loan and the exposure arising out of Euro bond, foreign commercial loans and project loans under the CPEC.
The vocal exposure by the financial managers of the country that financials of the country are quite threatening is worrisome for the nation and reinforce the concerns expressed since long by the financial experts of the country.
One of the top election slogans of PMLN has been that it will move Pakistan out of the clutches of the IMF. This did not happen. Instead of inculcating fiscal discipline, good governance and innovative financial engineering, the government chose an easy way out and signed off in September 2013 a loan agreement with IMF terming it a bailout package on account of messed up financials left behind by the PPP government. The status is no different from what it was in 2013 and the new elected government will begin its innings on the same somber note.
PML-N started its tenure in May 2013. It did well in the first half of that tenure as it was able to bring about massive improvements in economy. Unfortunately, however, it lost its focus and zeal in the second half of its tenure on account of political expediency.
Loans are permissible if the same could be effectively deployed for the generation of revenue for the government - a part of which be utilized to pay back loans. In the case of Pakistan, however, most of the loans taken are deployed to subsidize poor governance. In the seven weeks that are available to caretakers, they can initiate the process of bringing about good governance. This desirable feat is possible in the available timeframe of 7 weeks.
(The writer is former President of Overseas Investors Chamber of Commerce and Industry)