Pakistan and the IMF: (Twenty)-third time’s the charm?
The economy has a lifeline, barely.
She said yes! After a drawn-out courtship that lasted well over a year, Pakistan finally managed to persuade the IMF to sign an agreement. The deal is a short one, lasting only nine months. But after being let down on 22 previous occasions, who can blame the IMF for being a little wary?
The agreement was not a given. The headstrong chotay chachu (Ishaq Dar) strained relations for a year by pursuing his pet project (artificially strengthening the rupee) despite everyone’s objections. When the IMF politely informed him that he didn’t have the money to keep up this façade, he claimed he didn’t even need her (-he did), and that the entire susraal was in fact conspiring against him by not lending him more money. I’m sure that went over well.
Along the way, he managed to insult Moody’s, which was objectively hilarious, by stating that he would fly to DC and confront them if they did not reverse their downgrade of the country’s credit rating. He also slapped a journalist, which was considerably less funny, for daring to ask him if he was the problem.
Eventually, it took an intervention by baray pappa (Shahbaz Sharif), who spoke directly with the other side’s buzurg (IMF MD Kristalina Georgieva), for concerns to be assuaged and an agreement being reached. One of the clauses requires Dar to attend therapy – I presume.
Celebratory fervour enveloped the business community on Monday. The PKR gained 15 rupees against the dollar in the inter-bank rate, while the Pakistan Stock Exchange posted its largest single-day gain since 2008. In isolation, it’s strange to see such positivity around a deal with the IMF – no country approaches it when things are going well. But then again, Pakistan is a strange place.
Its economic fundamentals are so weak that businesses actually prefer Pakistan being in an IMF programme than out of one. On the inside, the loan lends valuable foreign reserves to the country, while the IMF stamp of approval also unlocks assistance from other multilateral and bilateral partners (namely China, KSA and the UAE). On the outside looms record inflation, import restrictions, and the possibility of a sovereign debt default.
Ultimately however, these are short-term solutions. Most of the external assistance Pakistan receives is in the form of loans, which charge interest. Combined with domestic borrowing, this results in Pakistan spending half its budget on debt servicing alone. Another 18% is spent on the military, leaving the government with a measly amount to actually spend on its people.
This imbalance has been a consistent feature in our economy. In the Musharraf era, our deficits were covered by assistance from the United States – to the tune of over $2 billion a year between 2002-2013. That, along with our status as a key partner in the “War on Terror”, meant that significant foreign aid and loans flowed into the country. Subsequently, cheap oil prices and a favourable international lending environment allowed Pakistan to maintain relative macroeconomic stability between 2013-17.
Those times are now over, and for Pakistan it is a time of reckoning. Simply put, our balance sheet must add up. Along with facilitating remittances via legal channels, Pakistan needs to have a coherent export and import strategy in place to boost our balance of payments in the longer term. What could such a strategy look like? That’s a question that will be explored in the next post, stay tuned.
Great read! Enjoying the short but punchy 3-min articles which are very current, impartial, and entertaining. Keep up the good work, Asad!
loving your satirical tone of writing in the 1st bit 💯