Pakistan may bank on survival without IMF
By Syed Fazl-e-Haider
KARACHI - Pakistan may stay clear of International Monetary Fund (IMF) loan programs, including the current standby arrangement worth US$11.3 billion which ends on September 30, and future deals, gambling that its existing resources are sufficient to do without.
A Pakistani team led by Finance Minister Abdul Hafeez Shaikh is due to meet with IMF officials during the World Bank and IMF annual meeting in Washington from September 23-25. The country's latest position will be supported by analysis jointly conducted by the finance ministry, the State Bank of Pakistan and the Planning Commission.
Payments under the latest arrangements were halted last July over the government's inability to implement economic reforms.
The country's exclusion from IMF programs would have its own pros and cons. Critics say a decision to rebuff IMF cash would be a populist move of the sort government usually tend to make in election years.
Pakistani officials are confident the country will need no fresh IMF loan if the current pace of exports and remittances continue till next June, enabling the country to repay its first two installments of the existing IMF loan.
"There is no immediate threat to the balance of payment and our foreign exchange reserves position is comfortable enough," Reuters reported a Pakistani official as saying. "There is no crisis at hand that will call for an immediate action. But we will stay in close contact with the IMF."
The government will need to pay $1.2 billion back to the IMF next year. It has just under $18 billion in foreign exchange reserves.
"There are risks, but we feel that we can handle them," The Express Tribune reported one senior finance ministry official as saying.
The perception that the $11.3 billion bailout program from the IMF has kept Pakistan's economy afloat since 2008 has practically proved wrong after the country survived the fiscal year that ended in June without IMF payments. The suspension of IMF loan even stopped budgetary support to the country from the World Bank and Asian Development Bank (ADB).
"The government's comfortable feeling stems from anticipated $37 billion earnings from a 5% growth in exports and strong workers' remittances during the current fiscal year," according to Dawn newspaper. The officials are confident that the projected $37 billion from exports and remittances are enough to meet the country's foreign exchange requirements with a current account deficit of about 1-2%.
Remittances from overseas Pakistanis jumped 40% to a record $1.3 billion in August against $933.06 million a year earlier, according to the central bank. Remittances rose 25.8% to a record $11.2 billion in the 12 months to June 30 compared from the previous fiscal year.
Some finance officials believe Shaikh should use his personal relationship with David Lipton, a former adviser to US President Barack Obama and newly appointed deputy managing director at the IMF, to seek restoration of the current program, The Express Tribune reported.
"It will be a setback to Pakistan's image and the policymakers will be known as the ones with a non-serious attitude," The Express Tribune reported a high-ranking economic policymaker as saying. Even so, in the past 22 years, the country has sought IMF bailouts 11 times and failed to complete all but one, signed in December 2001, which was completed ahead of schedule.
The increase in remittances helped to raise the saving rate in last fiscal year 2010-11 despite double digit inflation, according to the central bank. The national saving rate increased to 13.8% of gross domestic product (GDP).
Yet, whatever is being saved in financial institutions, critics claim, is being invested in government paper that is non-productive and does not help the economy to perform better.
Domestic public debt has risen to 33% of gross domestic product (GDP) while external public debt stands at 26.6% of GDP.
The average maturity for domestic debt has fallen to 18 months and with interest rates above 12% costs were equivalent to about 35% of federal tax revenue for the fiscal year that ended on June 30, according to an Asian Development Bank report.
Local analysts believe the hugely indebted country will face difficulties early next year when it will have to pay several loans. The government's only option then will be to seek a new IMF program.
Internal or external shocks may also compel the flood-hit country to consider seeking fresh IMF loans. In case of new loan request, the IMF may suggest that surplus cash crops should be kept under the IMF supervision; it may also take a tougher stance for a complete end of power subsidies and a lower fiscal deficit.
The country's decision not to seek a new IMF loan could affect Pakistan's relationship with the the ADB and the World Bank.
"The ADB and the World Bank may not restore their budgetary support loans. But this is not new. Pakistan has learnt to manage the situation without external financial assistance," The Express Tribune reported Finance Minister Shaikh as saying.
The country secured its existing IMF program in 2008 to avert a balance of payment crisis and it has so far received about $7.6 billion from the Fund. It has failed to get the remaining $3.7 billion due to slippages in performance criteria, leading to suspension of the program. The program was extended in December for nine months, but disbursements were not resumed owing to the government's failure to take fiscal measures as demanded by the Fund.
Asia Times Online :: Pakistan may bank on survival without IMF
Pakistan may bank on survival without IMF
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