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Back to the IMF

July 11, 2018

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THERE is growing awareness that Pakistan is firmly on the road back to the IMF for an emergency loan as the country’s foreign exchange reserves head towards the critical mark of one month’s import cover. It is an open question when that point will be reached, considering that the recent rounds of exchange-rate depreciation have given a boost to exports. But that boost may not last long, and the depreciations have also driven inflation since they are responsible for the rise in the price of fuel imports, both petroleum and natural gas. The debate on timing aside, the fact that Pakistan is set to repeat the cycle of depleting foreign exchange reserves, followed by an approach to the IMF, shows that despite growth in the real sector, the fundamental dysfunctions of the economy remain entrenched in the five years since 2013 when the Fund’s support was last availed.

Now that the awareness of an impending return to the IMF is spreading, some anxieties are being stoked along the way. A recent report in the Financial Times, citing unnamed officials, pointed out that being in a Fund programme would mean opening up the financial details of all CPEC loans and grants, as well as the financing terms on which other Chinese loans have been taken for balance-of-payments support. The report cited unnamed officials as saying that such an eventuality has been the topic of discussion between Pakistani and Chinese officials — and if true, it sounds a bit like blackmail. One can only hope it has not come to this, but if it has, then the government is treading on a dangerously narrow ledge.

It may well come to that though, given that Pakistan is fast running out of options to shore up its reserves. Already at least $2bn have been drawn from the Chinese as balance-of-payments support, and the currency swaps position also shows some drawings. With options running out, and the deficit on the current account persisting, a future course of action is becoming urgent. The interim government has done the right thing in refusing to engage in what amounts to a strategic policy choice that goes far beyond the mandate of a caretaker set-up. What is needed is work to begin on what a potential letter of intent might look like and what sort of commitments Pakistan is ready to make in return for a Fund bailout so that at least the outline of an action plan can be left behind for the new government which would then not have to start from scratch. It is always better to go to the IMF with an action plan. The caretakers could encourage that conversation among government, business and economists. That would be within their mandate.

Published in Dawn, July 11th, 2018