- Is this money going to be any good?
Delaying, even claiming to rule out, another IMF program and procuring loans from friendly countries is all very fine, but is all this money going to really do any good beyond headlines? The issue everybody is looking to address is the current account deficit. Since it’s currently around $18-20 billion, it’s naturally the number one concern for the new government. There’s no way of building a Naya Pakistan, really, if there’s just no money in the kitty. Plus we have big payments due just around the corner. That is why all the talk of an IMF program took off in the first place.
Going into the election, and for a while before it, Imran Khan was dead against approaching the Fund. He even said, on occasion, that he’d kill himself before go begging to the IMF – like every government since the 80s. So after some back and forth he decided to try his luck with Saudi Arabia and China for some bailout money. Let’s see how far that has got us.
The Saudis have given us a total of $12 billion on a timeline that should keep us happy for at least three years. But of the $12b, $3b is meant to just sit in central bank vaults, while there will be $3b of deferred oil payments for three years. But the money sitting in the bank, which we cannot spend, will be of little use when our creditors come asking for the $8-10b due shortly. What are the headlines going to say then?
And the deferred payment is hardly a novelty. It’s been a standard resort since the first Gulf War of 1990. Plus it will only provide so much relief. The money will eventually have to be paid back. And if the PM is counting on the economy to completely turn around in a few years, enough to pay back these loans that should help us pay back old loans, he is most likely in for a very disturbing surprise.
Now, much is being made about likely similar gestures from the Chinese. There’s been no confirmation till the time of writing, but word is that the $6 billion expectation has been trimmed down to $2 billion. But, again, how pretty will this look just parked in SBP vaults? We will not be able to use it. We’ll certainly make no repayments with it. And there’s no way we can build a Naya Pakistan with it. Plus, China’s already our biggest foreign investor. Asking them for two billion, considering the CPEC backdrop, is somewhat insulting.
Didn’t Asad Omer formally request IMF for a bailout not too long ago? Also, what was the mini-budget all about? Didn’t the finance minister employ text book subsidy-cutting, price-increasing measures that countries knocking at the Fund’s door do as a matter of routine?
Sure, these sums will make the reserves look a little prettier. But what is the prime minister going to do when the one year timeline of putting this money in Pakistan expires? It’s unlikely that the economy would have completely turned around by then? And he’s still not explained how he’s going to make immediate payments that are due. How soon, then, should we expect him to be out and about with the begging bowl once again?
It’s also very unlikely that these loans, or grants, would have come without any conditions; especially the one from Riyadh. So did we just incur more loans, that offer no help to the repayment problem, because we did not want to go the IMF? And has a resort to the Fund really been ruled out?
Didn’t Asad Omer formally request IMF for a bailout not too long ago? Also, what was the mini-budget all about? Didn’t the finance minister employ text book subsidy-cutting, price-increasing measures that countries knocking at the Fund’s door do as a matter of routine? It’s a good bet, really, that despite the Saudi and Chinese money that the PM is bringing, he’ll still have to engage in an IMF program. And that will bring very harsh austerity. And prices will rise further; hitting his core working middle class constituency the hardest.
The way Imran Khan is dancing around donors shows that the government did not have an action plan coming into power and has still not been able to formulate one. It is just groping in the dark trying to delay the inevitable. It is not doing anybody any favours. At the end of the day it will only add to the people’s burdens.
The prime minister’s, and the finance minister’s, attention is better invested in solving the real structural problems of the economy. The biggest puzzle right now is raising revenue. Pakistan has not been able to increase export and tax earnings in decades. The tax situation is particularly appalling. Of a country of roughly 220 million, there are roughly 1.3 million registered taxpayers of whom not much more than a hundred thousand actually pay their taxes. The rest is managed by indirect taxation. Good luck with that as austerity kicks in, prices rise and wages remain stagnant.