Economic observers expect the International Monetary Fund (IMF) to bail out the dollar-hungry Pakistan with an extended loan facility of up to $ 5 billion by September this year. If the status quo prevailed, Islamabad would be facing a possible default on the balance of payment front as the central bank, as of June 14, was left with only $ 6.2 billion of foreign exchange reserves which, analysts believe, cannot cater to the country’s import payments for more than a month and a half.
Sources privy to the meetings said an IMF team last Friday visited Karachi and held, what one participant termed, its “review” meeting with the State Bank of Pakistan (SBP) and other stakeholders.
“This is a review meeting only. Nothing special,” a participant invited by the central bank to the meeting with the visiting IMF officials at the state bank’s head office said.
Topline analyst Asad I Siddiqui assumes the IMF team not only reviewed Pakistan’s overall economy but also Islamabad’s compliance to earlier demands for structural reforms, prominently those pertaining to broadening of the tax net that stands at 9.5 percent of the country’s GDP-one of the lowest in the world.
“The loan is expected to be received by September 2013,” the analyst viewed, adding that the fresh injection of billions would provide the much-needed cushion to the country’s depleting dollar reserves.
Citing media reports, Asad said, the cash-strapped government of Pakistan was likely to have formally asked the IMF’s visiting Post Program Monitoring (PPM) team for a fresh loan.
However, he warned, the conditions of the credit facility would depend upon reforms that the newly-elected Pakistan Muslim League-Nawaz (PML-N)-led government would be bringing in.
In its monetary policy statement for July-August, the state bank has termed the lack of financial inflows into Pakistan a big challenge for the country where the newly-elected PML-N-led government is finding it hard to impose more taxes and facing stiff resistance from the opposition to the proposed one percent hike in GST on services.
The proposed increase is envisaged to fetch Rs 60 billion for the funds-starved government during FY14.
“The real challenge continues to emanate from the lack of financial inflows,” observed the state bank.
Moreover, the regulator said, the outflows had been sharp during the first 11 months of the outgoing FY13.
The bank said the period under review cumulatively had seen $ 143 million of net capital and finances flying out of Pakistan.
“Add to this the ongoing payments of IMF loans and it becomes clear that the pressure on foreign exchange reserves has not abated,” the central bank said.
It recalled that stress in the balance of payments position remained a prime consideration in maintaining the policy rate at 9.5 percent during the last four months.
Despite these challenges, analysts foresee a smooth sailing for Pakistan’s economy in the months ahead when the country has to repay over $ 3 billion to the IMF under the half-paid $ 11 billion Stand-By Arrangement of 2008.
While some are counting on the fresh IMF bailout package, others look positively towards a withdrawal-driven Washington where the Obama regime is likely to release at least $ 1.8 billion on account of Coalition Support Fund (CSF) to Pakistan during the next fiscal year.
Also, the new government is expecting to recover privatisation proceeds of $ 800 million from Etisalat Group which acquired major stakes in PTCL. The reported willingness of the pro-Sharifs Saudi Arabia to provide the energy-scarce country with oil worth billions of dollars on deferred payments is also seen as a breather for Pakistan in terms of balance of payment.