KARACHI: Pakistan has been living beyond its means for several years now as evident from the widening current account and trade deficit, says the Fitch Solutions’ analysis on Pakistan’s economy.
The country’s trade deficit was at its widest reaching $37.67bn during last fiscal year, and has already crossed the $11bn-mark during the ongoing fiscal year.
But “further austerity measures will likely exacerbate the cyclical slowdown in the Pakistan economy” and the government will not be able to sustain the growth momentum with or without the “International Monetary Fund (IMF)-induced austerity”.
Fitch forecasts GDP growth to slow over the coming quarters and clock in at 5.4 per cent during the ongoing fiscal year from 5.7pc last year.
The government is currently engaged with the IMF to agree on the terms of next bailout. Pakistan has had 21 loan agreements with the fund since the country became its member in 1950.
However, “any deal is unlikely to put an end to the fiscal mismanagement that routinely necessitates external bailouts,” highlights the report.
The report adds that Pakistan’s agreement with the IMF “will take a similar form as the previous $6.4 billion Extended fund Facility (EFF) in 2013”. Fitch Solutions — an affiliate on the Fitch Ratings — says the funds from IMF are likely to come with demands “usual of the Pakistan authorities to raise rates; depreciate the rupee, broaden the tax base and increase power tariffs.”
The IMF has reportedly mandated the government to provide a clear strategy on anti-money laundering measures and steps to curb corruption, among other conditions, to access IMF funds.
According to the report, “the IMF is also wary about the lack of transparency surrounding Pakistan’s burgeoning liabilities to China relating to the China-Pakistan Economic Corridor (CPEC), with the IMF seeking full disclosure of its debts, which the finance ministry has agreed to”.
“Moreover, sources at the finance ministry said that the government will share only data related to the CPEC with the IMF and not the framework agreement signed between Pakistan and China.”
The government before coming into power had censured former government’s lack of clarity on the deals made under the umbrella of CPEC.
With talks ending today, the loan amount has not been confirmed yet but the government has reportedly sought $6-7bn from the IMF. The $13bn bailout package — including the $6bn from Saudi Arabia — would not be enough for the government to “tide the economy over for any length of time”, warns the report.
The report also informs Imran Khan’s administration is resisting to “accept several of the IMF’s terms and conditions”, but an agreement for the bailout is highly “likely”.
The incumbent government has already informed the IMF representatives regarding its plans to privatise loss-making state owned entities.
The plans, however, “do not include the sale of Pakistan Steel Mills or Pakistan International Airlines (PIA), among other loss-making behemoths”.
The government has already approved Rs17bn bailout package for the PIA last week to keep the national carrier from grounding. The carrier’s losses crossed the Rs350bn mark in June this year.
“Privatisation was [also] a prerequisite of the prior loan agreement but the much-vaunted privatisation drive largely failed to take-off under the previous Nawaz Sharif administration”, highlights the report.
Published in Dawn, November 20th, 2018