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Painful decisions ahead, warns Asad on return from Bali

Updated October 14, 2018

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Finance Minister Asad Umar. — Online/File
Finance Minister Asad Umar. — Online/File

ISLAMABAD: Finance Minis­ter Asad Umar on Saturday said the government will have to take difficult decisions that would be painful for people but necessary under international commitments to get out of the current severe economic situation.

Speaking at a news conference after his return from Indonesia where he formally applied for the IMF bailout, the minister rebutted the narrative in the Trump administration that the China-Pakistan Economic Corridor (CPEC) was responsible for Pakistan’s debt problems and the need for IMF bailout and said talks with Saudi Arabia for oil supplies on deferred payments were in progress.

He said the government would have to make a stop-gap arrangement for external financial resources to support foreign exchange reserves until the IMF programme was finalised. An exercise for short-term borrowing was in the process for the prime minister’s approval.

IMF mission due on Nov 7, CPEC not to blame for debt crisis

The minister said the US was a key stakeholder in the IMF with about 16.5 per cent votes but enjoyed no veto power in its decision making that required majority 51pc votes. He said no government in Pakistan irrespective of any political background could compromise on national security and the PTI government, too, would not opt for an IMF programme if conditionalities are of that nature.

He was responding to a question related to comments by US State Department spokesperson Hea­ther Nauret that Pakistan found itself in the current situation partly because of Chinese debt and that the US would examine Pakistan’s debt position from all angles in evaluating any type of loan programme.

The “statement of state department spokesperson is 100pc wrong”, he said explaining that Pakistan’s financing gap for the current year was about $12 billion and total repayments to China averaged $300 million over the next three years. “We totally disagree with that statement,” Finance Minister Umar said, adding that he had already explained this to the US representatives and also to IMF chief Christine Lagarde. “The American narrative is totally wrong narrative.”

The minister said there was nothing in the CPEC agreements and loans that should be kept secret. Rather, it should be known to the world, placed before parliament and shared with the IMF that how a real friend China extended attractive financing to Pakistan for the long term. He said the Chinese embassy had endorsed this position in a recent tweet.

The finance minister also denied a statement by his cabinet colleague Fawad Chaudhry that unacceptable conditions from friends – Saudi Arabia, China and the UAE – compelled Pakistan to go for the IMF bailout. He declined to go into details about the hype around $10-12bn support from Saudi Arabia and the UAE and why it fizzled out saying the decision to go for the IMF programme was “taken with their consultation and there was no condition demanded either by Saudi Arabia, the UAE or China at all. I won’t comment more”.

Mr Umar said the IMF programme was inevitable in the given circumstances when export competitiveness had been destroyed and debt profile aggravated over the past five years and the people would have to brave the impact of the consequential inflation and squeeze on growth. He said the IMF programme would be a helping hand for Pakistan to gradually sail through the tough economic circumstances. “We can perhaps live without the IMF but this could be more painful,” he said.

The minister said an IMF mission would visit Islamabad on Nov 7 for talks to determine the size of the balance of payments support before which the government would prepare Memorandum on Economic and Financial Policies for discussions and agreement. He said Pakistan’s current year debt repayments were about $9bn but obviously it would not entirely be available from the IMF.

He said the some support would also come from bilateral and multilateral creditors and investors in the market once the IMF certificate is available along with financing. He said the size of the IMF funding was not yet clear but the programme would be for three years with front end disbursements.

Mr Umar did not agree that last week’s currency devaluation and stock market crash was because indecision or policies of the government saying the currency was devalued on the signal from the State Bank of Pakistan and it was a considered decision of the PTI that exchange rate should be determined by the central bank without any political interference from the finance ministry.

He said Pakistan had so far availed a total of 18 programmes of the IMF, including two by the PML-N, eight by the PPP and eight by the military governments and hence it was not unique for the PTI that was forced upon it because of decline in foreign exchange reserves on the domestic front. On the external side, he said the policies of President Trump, including sanctions on Iran and trade war with China, led to oil price increase and economic uncertainty in the international market besides increase in US interest rates and currency crises in Turkey, Greece and Argentina.

Responding to a question, the minister said he would not take refuge behind the IMF for tough economic decisions that had become unavoidable because of the poor policies of the previous government. He said the economic problems could not be addressed unless the export sector was supported to reduce trade gap because of about $60bn imports and $25bn exports.

He said the lower middle income group could suffer the most in the medium term because of corrective economic structural reforms and he had also sought advice from multilateral lenders how the impact of stabilisation should be minimised on this class. On its part, he said, the government had increased gas prices for this segment by 10pc compared to 143pc of the rich while exempting the export-oriented sectors.

Similar approach would be applied when electricity rates are increased to restore competitiveness of the export sector.

In reply to a question on bringing back funds held illegally abroad by Pakistanis, he said Switzerland was on top of the countries who have not shared details of that wealth and he had taken up the matter with the Organisation for Economic Cooperation and Development which has agreed to intervene for mutual information sharing.

In response to another question, he said he did not agree that privatisation of public sector entities like Pakistan Steel Mills and PIA was a solution to address their continuous losses but getting them out of the clutches of the bureaucrats and politicians and giving under professional management teams to turn around them. He said it was also not true that their staff was a cause of their disaster but the governance failure.

Published in Dawn, October 14th, 2018