Reading about Egypts falling out with the IMF over emergency funding to avoid economic collapse; one can help but notice the similarities with Pakistan.
Just like Pakistan, Egypts foreign reserves have also been dwindling. "Egypts foreign reserves have reached $13.5billion-below the critical level of three months of imports," said an article in the Financial Times published earlier this week.
As for Pakistan, reserves have fallen to $12.8 billion, which, as an analogical reference, is quite close to the 3-month imports of $10 billion during October-December FY13. Note that of these, SBPs reserves are merely $7.9 billion.
At the same time, both Egypt and Pakistan are finding it hard to implement non-populist measures right before elections. These include prescriptions by the IMF for increasing revenues by imposing sales taxes, and cutting down expenditures by reducing energy subsidies.
The only difference is that while Egypt is trying to tie up an IMF programme right before the elections, while Pakistan can help stalling it till right after the elections. The dismal foreign reserve situation affirms that an IMF bailout will be needed by Pakistan in all certainty.
"The rupee is under serious pressure. The central bank doesn have the ability to defend it," Sayem Ali, an economist at Standard Chartered, was quoted by Bloomberg earlier in January.
With the dual swords of a weak rupee and flailing foreign reserve situation, it is quite obvious that an IMF loan will be inevitable. But tough calls of higher taxes, tighter monetary policy, and other measures to curb the budget deficit will need to be taken by the new government. Clearly, there is a lot of homework in economics to be done by any party aspiring for the top spot in the upcoming elections.
So, for both Egypt and Pakistan, turning to the IMF for some much-needed assistance seems to be an obvious call. "The failure to agree an IMF programme will send a negative signal to all those investors waiting for hints of real action on the ground to reform the economy," the FT quoted Mohamed Abu Basha, Egyptian economist at EFG-Hermes, the regional investment bank.
To avoid such emergency begging from the IMF so often, its in the interests of both countries to seek out structural reforms to improve their fiscal situations. The solution, though a tad difficult at first, is more sustainable and long term than any external help, no matter how big.