IMF facility

Published April 18, 2020

THE news of new lending from the IMF totalling $1.3bn is a welcome development as Pakistan’s external pressures are growing and exports and remittances fall. The details released by the IMF one day after the announcement shows that along with the G20 countries’ debt relief plan, Pakistan’s external debt position has also been helped by China, Saudi Arabia and the UAE. China has rolled over $2bn worth of its deposits in March, the kingdom has already refinanced $3bn of its loans that matured between November and January, while the UAE has also rolled over its $1bn loan. Substantial space is now opening up on the external front for Pakistan even as exports and remittances are set to plummet, registering negative growth rates of 2.1pc and 4.8pc respectively. So the comfort coming from creditors is doubtless welcome.

In the language of the economists, the higher current account deficit is set to be compensated by lower financial account outflows, as well as unscheduled support from multilateral creditors. After the IMF, the World Bank and the Asian Development Bank are also set to repurpose close to $250m towards balance-of-payments support for Pakistan. On the external side, enhanced borrowing from multilateral creditors, along with the suspension of debt-service obligations for a limited period, will provide some breathing room for the government to avoid any crisis situation.

But two things must be remembered through all this. The first is that the space has opened up mainly through more borrowing, and the suspension of debt-service payments can only give momentary respite. Those payments are set to begin again in 2022. The second thing to bear in mind is that all dollars are not equal. Reserves with borrowed money provide less comfort than those built with earned money. The IMF provides a timely warning that with the economy undergoing its first ever contraction since 1952, “risks associated with policy slippages and resistance to reforms, including from vested interest groups, loom large”. Already one can see the billionaires’ club moving into action around the government, with vested demands couched in the language of public interest or job creation in their hands. Wherever space opens up, whether fiscal or external, or even in the allocation of subsidised natural resources, these same elements are the first ones at the door with demands for why they should be the ones with privileged access to the resources accrued. There is no doubt that the same play will turn towards the external sector space that has just opened up. It was uncanny to see the stock market celebrate this with a rally in the midst of a powerful and historic economic contraction. This is what must be resisted, and careful thought should be given to how best the public interest can be served with this relief.

Published in Dawn, April 18th, 2020

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