IMF demands details of all debts

NUSA DUA, Indonesia: The International Monetary Fund (IMF) on Thursday said the Fund would need to know the extent and composition of Pakistan’s debt to appreciate and determine the debt sustainability.

The IMF’s Managing Director, Christine Lagarde, confirmed that Pakistan requested financial assistance from the IMF to help address the country’s economic challenges and the Fund would be sending its team to Islamabad in coming weeks to initiate discussions for possible package.

The requirements are likely to shine a spotlight on the extent, composition and terms of Pakistan’s debts to China for infrastructure projects as part of Beijing’s massive Belt and Road building programme. China has pledged some $60 billion in financing to Pakistan for ports, railways and roads, but rising debt levels have caused Islamabad to cut the size of the biggest Belt and Road project by some $2 billion.

"In whatever work we do, we need to have a complete understanding and absolute transparency about the nature, size, and terms of the debt that is bearing on a particular country," Lagarde told a news conference when asked about Pakistan’s debts to China.

The United States has criticised China’s infrastructure lending, warning that it has saddled some developing countries with debts that they cannot afford to repay. US Secretary of State Mike Pompeo has said there would be "no rationale" for an IMF bailout of Pakistan that pays off Chinese loans.

Lagarde said that the IMF would need to know the extent and composition of the country’s debt, including sovereign debt and state-owned enterprise debt, "so that we can actually really appreciate and determine the debt sustainability of that country, if and when we consider a programme," she added.

Lagarde said in a statement that Pakistan requested the IMF assistance during a meeting with Finance Minister Asad Umar and central bank governor Tarik Bajwa on the sidelines of the IMF and World Bank annual meetings in Bali.

"An IMF team will visit Islamabad in the coming weeks to initiate discussions for a possible IMF-supported economic programme," Lagarde said. "We look forward to our continuing partnership."

The formal request follows an apparent 7 percent devaluation of the Pakistani rupee by the central bank on Tuesday, after Prime Minister Imran Khan announced the government would seek financial assistance to ease a mounting balance of payments crisis.

If a package is agreed, it would be Pakistan’s 13th IMF bailout since 1988. The Fund lent Islamabad $6.7 billion in 2013. A Pakistani minister told Reuters in Islamabad on Wednesday that the government was considering options, including the possible restructuring of some foreign loans. "It’s in very initial stages, the negotiations haven’t started or matured yet, but this is something that we may look towards," Muhammad Hammad Azhar, State Minister for Revenue, said.

Donors have warned Pakistan that its budget deficit, which hit 6.6 percent of the GDP in the year to end of June, was unsustainable. "We do have extremely high deficits," Azhar said. "Unless we restructure the debt the burden will mount."

In the past year, Pakistan has borrowed billions of dollars from China to boost its foreign currency reserves, with the money spent defending an overvalued local currency. This is on top of money pledged for Belt and Road projects. Azhar said Chinese projects should proceed as planned as the government views infrastructure was vital to stimulating growth.

Most of the Chinese money loaned so far has been through private power projects and not to the government, but Islamabad has given sovereign guarantees for the projects’ annual profits. Critics have raised concern about opaque nature of some of the deals, saying they have left Pakistan with liabilities that could saddle it with de facto off-books debt.

The IMF had sent its appraisal team to Islamabad from September 27 to October 4, 2018 and both sides exchanged data and worked out details, however, the government took time to make up its mind for approaching the IMF and did not request to hold Article IV consultation, so the Fund would not treat those talks as pre-requisite for converting its working for formal programme.

When the IMF’s resident representative was contacted for seeking her comments, she said the IMF mission would visit Pakistan but its exact timeframe has not been worked out yet. Official sources in the Ministry of Finance said the mission team of the IMF might visit Islamabad next week and the finalisation and approval of possible programme might take at least four to six weeks, so Islamabad might have to arrange $1 to $2 billion as stopgap arrangement to avert a crisis like situation in coming weeks.