Avoiding IMF amidst geopolitical risks

Updated September 10, 2018


Facts speak louder than sentiments. But perception is more powerful than reality.

Disturbing economic facts persist: our central bank’s foreign exchange reserves of $9.88 billion can hardly cover two months of imports, the rupee has shed another 2.25 per cent in a little over two months of this fiscal year, the current account deficit in July stood at $2.2bn and the overall balance-of-payment gap was $582 million.

Finance Minister Asad Umar says our external financing gap in this fiscal year will be at least $9bn. Clearly, external account problems are far from over. That is why the reconstituted Economic Advisory Council (EAC) has called for revising the 2018-19 populist budget presented by the preceding government. If carried out with care, the revision should give the PTI government some fiscal room and help check external sector woes as well.

The decision to go back to the IMF is being delayed inordinately as sentiments on the issue of self-reliance run high in Islamabad

Sentiments on the issue of self-reliance are so high in Islamabad that a decision on returning to the International Monetary Fund (IMF) is being delayed. Hopes are being pinned on a number of other options.

From bringing back home part of $110bn or $150bn that reportedly belongs to Pakistan but resides abroad to auctioning luxury vehicles of Prime Minister House, all options are grabbing headlines in the national press.

Prime Minister Imran Khan is a daredevil. Asad Umar is pragmatic to the core. In a sense, this duo is ideal as the former’s raw courage and the latter’s practical approach should help the country tide over economic troubles.

Well-intended moves that keep springing up out of a deep craving for self-reliance are like powerful water waves in the ocean. But harnessing their potent power requires the patient execution of a well-thought-out plan. Can onlookers rejoicing at the power play of giant waves actually make electricity out of them?

So what’s the point in discussing on the media day in day out the so-called other options of generating $9bn without going to the IMF? Tapping these options can benefit the economy in the long run. But pinning hopes on some or all of them for fixing the current external sector issues carries the risk of delaying actions and making their resolution more complex.

Geopolitics is playing an assertive role in deciding the economic fate of nations in this era of more challenging inter-state relations, regionalisation, new power bloc building and greater show of trade and investment muscles by mighty economies. If we don’t keep this fact in mind, no raw courage or daredevil mantra will work to our benefit.

US Secretary of State Mike Pompeo came to Islamabad along with Chairman of the Joint Chiefs of Staff General Dunford and met our political and military leadership. According to the State Department readout, he “conveyed the need for Pakistan to take sustained and decisive measures against terrorist and militants threatening regional peace and stability.”

In an impressive show of improved civil-military relationship, Mr Khan attended the Defence and Martyrs Day proceedings at General Headquarters the following day and remarked that Islamabad would not be a part of anyone else’s war.

Just then, Mr Pompeo and Secretary of Defence James Mattis met their Indian counterparts in New Delhi and signed deals for enhancing defence relations between the two countries. Mr Mattis called US and India “consequential emerging partners” — an upgrade from strategic partners.

All this happened against the backdrop of the US-China trade war, US move to unilaterally end the nuclear deal with Iran and blockade of what Islamabad claims the reimbursement of its already incurred expenses on the war on terror.

So the question is: should we still go to the IMF — the global lender that the United States had already warned to be careful while lending to Pakistan — knowing that it means nothing short of playing that role in Afghanistan that Washington wants to impose on Islamabad and we want to self-define?

“Much, therefore, rests on how soon we can fix holes in our external financing without returning to the IMF through practical means — not via sentiment-driven, long-term resource-generating schemes,” says a well-placed source in the PTI government.

“I think the IMF option is becoming less appealing. People in Islamabad think they can secure some additional funding from China, Islamic Development Bank, Asian development Bank and World Bank. If that funding starts flowing from October, there won’t be a major impact on the rupee’s health and foreign exchange reserves will also not show a major decline.”

Chinese Foreign Minister Wang Yi is in Islamabad on a three-day visit. By the time this write-up is published, the picture will be clearer. External accounts of countries like Pakistan have now become a vital front in their geopolitical strategy and, as such, more vulnerable.

Published in Dawn, The Business and Finance Weekly, September 10th, 2018