Fewer options: IMF intends to work with new govt amid looming BoP crisis

ISLAMABAD: The International Monetary Fund (IMF) is willing to engage the new government and suggest roadmaps towards economic sustainability, and assist Pakistan in its efforts to head off a looming balance of payment (BoP) crisis, the Fund said on Thursday.

“The IMF congratulates Mr Sharif on becoming Prime Minister and looks forward to working with his government and discussing policies that would support inclusive and sustainable growth,” said Esther Perez Ruiz, the IMF’s Resident Chief in Pakistan, while talking to The News.

She said this while commenting on the possibility of holding parleys with Pakistani authorities for accomplishing the 7th Review under the $6 billion Extended Fund Facility (EFF). However, the IMF’s official did not give any specific date or time-frame for the parleys to get the deadlocked IMF programme going.

According to top official sources, Pakistan requires massive dollar injections on an immediate basis in order to avert a balance of payment crisis as the foreign currency reserves held by the State Bank of Pakistan (SBP) further dropped to $10.8 billion as of April 8, 2022. China has not yet rolled over its commercial loan of $2.5 billion.

Another top official said China conveyed they had agreed in principle to roll over this commercial loan but now they would work out the technical details as a consortium of three banks was involved in it. “The Chinese side is awaiting the visit of newly-elected Prime Minister Shehbaz Sharif or a formal request from him. Pakistan requires these dollar inflows immediately because they are being depleted at an accelerated pace,” said the official.

On an immediate basis, the revival of the IMF programme is not an easy task mainly because there have been massive slippages in internal and external accounts of the economy and the new government will not be in a position to take tough decisions like hiking fuel and electricity prices as well additional taxation measures for resumption of the stalled IMF programme.

The yawning budget and current account deficits will further make it impossible to win any lenient attitude from the IMF. The budget deficit stood at Rs2,504 billion or 3.9 percent of GDP for the first nine months of this fiscal in accordance with provisional estimates, while the Ministry of Finance has projected it to escalate to Rs5,500 billion by June 30, 2022.

Pakistan is left with no other option than to seek more multi-billion dollar deposits from friendly countries such as China, Saudi Arabia and commercial loans from a consortium of banks to shore up its dwindling foreign currency reserves.

According to the SBP data released on Thursday, Pakistan’s total liquid foreign reserves stood at $17,028 billion as of 08-April-2022. The break-up of the foreign reserves shows the foreign reserves held by the State Bank of Pakistan were $10,84 billion and net foreign reserves held by commercial banks were $6,178 billion. During the week ended on 08-April-2022, the SBP reserves decreased by $470 million to $10.84 billion, mainly due to external debt repayments.

Yousuf Nazar, former head of Citigroup’s equity investments and author of a book on Pakistan’s economy, said if the current account balance continued to widen beyond the currently projected 4 percent of the GDP, Pakistan would have to knock on the IMF’s door. “It should immediately take measures to boost reserves by doing swaps with friendly central banks if it can.”

Simultaneously, Nazar suggests the new government should consider doing (foreign) debt to equity swaps with China to reduce external debt and improve performance of SOEs. “These measures will need to be supported at the highest level of the government and it will be helpful if the prime minister could talk to Chinese and Saudi governments and engage with the top officials of the IMF at the earliest,” he said. Nazar however termed them as short-term measures. “In the longer term, we must strive to attract investments in export- oriented industries and reduce energy dependence on imported fuel,” he added.