Tough IMF position

Published November 26, 2022

THE IMF has made it clear that Pakistan’s “timely finalisation of the [flood] recovery plan” — the key reason behind the delay in the disbursement of its next loan tranche — is necessary if multilateral and bilateral financial support is to continue. A Reuters report quoted the IMF’s resident representative Esther Perez Ruiz as saying that talks were ongoing with the Pakistanis on reprioritising and “better target support towards humanitarian needs while accelerating reform efforts to preserve economic and fiscal sustainability”. This stance is significant, and will likely enhance market anxiety regarding Islamabad’s ability to meet its external financing requirements and debt payments amid dwindling foreign exchange reserves. Earlier this week, a top Japanese investment bank, included Pakistan among seven states threatened by a currency crisis, raising the perceived default risk in the next 12 months as the country continues to struggle with balance-of-payments woes, stubborn inflation and a weak exchange rate. By making it difficult for Islamabad to access the promised funds, the IMF is only deepening Pakistan’s liquidity crisis that has been aggravated by the floods and political turmoil. There’s no doubt that the lender of the last resort has every right to ensure that loan conditions are followed in a timely manner as implementation of most of the reforms it has proposed is crucial for an early and durable economic revival. Yet it should show some flexibility with a view to helping this country get back on its feet.

That said, one is constrained to point out that Islamabad must understand that the time for ‘business as usual’ is long past. The world has changed drastically and our ability to exploit our geopolitical position to seek rent from donors and lenders has diminished. That in itself should make us mend our ways, while hoping that global donors will fund our proposed plans to fight the climate change impact on and damage to the economy with $13bn in flood aid over the next three years. Overall, the government has worked out a funding requirement of $40bn over 10 years. If the world’s lacklustre response to the UN’s repeated calls for funds to help Pakistanis affected by the floods, as well as the unusually harsh stance taken by the Fund, are any guide, this money is unlikely to materialise. Even if the world chooses to help us, it will not do so unless we first decide to clean up our messy house.

Published in Dawn, November 26th, 2022

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