Early last week, finance minister Shaukat Tarin told Bloomberg that “he thought (that) this (IMF) programme should be enough”.

His remarks came in the wake of the International Monetary Fund’s approval of Pakistan’s request for the resumption of the Fund’s funding programme, which had practically been suspended since spring 2020, initially owing to the Covid outbreak and later because of the Imran Khan government’s decision to ditch it to pursue growth to improve its chances of re-election in 2023.

Mr Tarin looks to end Pakistan’s reliance on the multilateral lender by sustainably growing the economy at five to six per cent. “If we start generating five per cent to six per cent balanced growth, which means sustainable growth, then I don’t think we need another IMF programme,” he had told Bloomberg.

The IMF projects Pakistan’s GDP to grow by 4pc this year against Tarin’s estimates of 4.5 to 5pc in spite of commodity price shocks in the international market he expects the growth rate to increase to 6pc in the next fiscal year, with the 39-month programme ending in September 2022.

Later in the week, State Bank of Pakistan (SBP) Governor Reza Baqir told European diplomats and Swiss companies in Islamabad that “economic growth may slow down to around 4.5pc in the current fiscal year” as he listed inflation and current account deficit as the two key challenges facing the economy.

Finance Minister Tarin looks to end Pakistan’s reliance on the IMF by sustainably growing the economy at five per cent to six per cent

“We are trying our best to contain the current account deficit through exchange rate and interest rate policies and hope that we will weather it much better than before,” he said, blaming international commodity prices for the yawning trade gap that has fed into the current account.

Both the IMF and the central bank expect the country’s current account to widen by 4pc this year from 0.6pc last year. However, Mr Baqir appears to be hopeful of containing it under $15 billion, much below $19bn in 2018 as the non-oil balance is projected by him to remain in surplus in response to the coordinated monetary and fiscal policies. The IMF is reported to have placed a requirement to increase the gross official foreign exchange reserves to $21.2bn by June 30 — addition of $5.5bn in just five months — to make up for the erosion of reserves on the back of the expanding current account deficit.

Given the fact that the countdown to the next elections will start soon forcing the government to spend its way to re-election by ditching the IMF-mandated harsh conditions once the programme is over, Mr Tarin’s assessment that Pakistan’s reliance on the lender of last resort seems a bit too optimistic, at least at this point. With the country’s trade deficit to stay elevated despite somewhat deceleration in import growth, Pakistan’s experience of the last two decades, especially the effort made by the present administration at the beginning of the ongoing fiscal year, underlines its inability to grow beyond 4-5pc without hitting a large, unsustainable current account deficit.

The Moody’s Investor Service, which termed the revival of the IMF funding programme ‘credit positive’ that will help Islamabad shore up foreign exchange reserves, also wondered if the government would sustain reform momentum after September 2022 as it enters the election. “However, beyond the expiry of the programme, the government’s ability to sustain reform momentum, particularly reforms aimed at further broadening its revenue base, or to commit to an immediate successor programme is uncertain given elections are scheduled to take place by late 2023,” it said.

The prime minister and his team are already in China to seek support from China that could help create some space for the PTI government to push economic growth and provide some relief to the low-middle-income households crushed under sustained price inflation in its last year in power once the current IMF programme ends to improve its electoral chances. If everything goes according to the script and Beijing agrees to finance Imran Khan’s bid for his re-election, it will only help to delay the need for yet another IMF programme until the next government takes over. But it will not end Pakistan’s reliance on the lender of last resort yet.

Published in Dawn, The Business and Finance Weekly, January 7th, 2022