IMF offer not a permanent solution to crisis
The national finance situation is getting worse and questions are being raised over the country’s ability to fulfill the next national budget. In these dire straits, as they are being painted, the IMF has come in with an offer: a $5 billion loan, but as with all IMF loans, is it a way out or is it a way into a deeper crisis? Thankfully, the caretaker prime minister’s Advisor on Finance Shahid Amjad does not have the mandate to strike a deal with the IMF, and it should be appreciated that he has abided by it, unlike earlier caretakers, but there are still hawks amongst the establishment that wish that he would have accepted. He has merely ‘sounded out’ the IMF for a possible deal once the political government is in place.
The task of making decisions – right or wrong – on the national economy is of the elected representatives of the people and the particular facility on offer, $5 billion at higher interest rate, short disbursement and longer repayment period, is one that will load the economy with a sizeable debt burden. However, with the offer standing, political parties must already initiate debate over how they intend to solve the finance crisis facing the Pakistani state. Statements such as the talks “went extremely well” and the fund’s attitude was “extremely positive” are merely the line that has to be towed to secure such a facility. The IMF is now on cue to send a delegation to Pakistan in June to discuss the facility, with disbursements possible within the coming summer. The loan shall be disbursed over 3-4 years and need repayment over the next decade, with repayments standing at about $1 billion per annum. As with earlier loans, the fear is that the economy will not be ready to easily make repayments at the end of the current loan, and another such facility will be required. One must recall that Pakistan’s relationship with the IMF now spans two decades.
The country already needs to pay the IMF around $850 million in May and substantial amounts in July and September. In that sense, one could argue that the IMF facility is to help repay dues to itself, and would add a constraint on Pakistan’s foreign exchange reserves. But as some say, beggars cannot be choosers, and Pakistan’s political parties need to take a careful stock of the offer. While the attention of political parties is cast on the elections, it would be good if their financial experts begin to exchange notes on how to face the financial crunch facing them when they take over. Taking or leaving the IMF loan facility shall be the one of the first decisions the next government will have to take – and probably one that shall set the stage for what their term shall be remembered by.