Even with the baggage of economic twists and turmoil, Pakistan is a country of prospects and potential. Its geopolitical position and nuclear power status have blessed us with a pivotal significance globally. On the diplomatic front, the performance of the PTI government is commendable. We have successfully reconnected with our friends globally, who offered the much-needed help in this time of economic distress.
KSA pledged $6 billion package to Pakistan, which included $3 billion for the balance of payment support and $3 billion for the import of oil on deferred payments. On the other hand, Pakistan and Abu Dhabi signed $3 billion agreement. Till now Pakistan has received $2 billion from KSA, and $1 billion from the UAE. Pakistan also enjoys China, Malaysia, and Turkey’s support and help in this financial crisis. Therefore, it is fair to say that the worst of the economic crisis is over, but can our friends help us break out from the vicious web of increasing taxes, oil, and gas prices without the International Monetary Fund (IMF) package?
Pakistan’s primary policy to overcome the balance of payment issues is to seek loans and help from our friends. Help is taken either as a loan or deferred payment for oil. In both scenarios, Pakistan has to repay in the set time period. Without effective planning and its implementation, this can re-emerge as a problem in the future, which can hamper our relationships with our friends, and alliances globally.
Except for the balance of payment issues, the borrowing has no or limited effect on the prevailing economic crisis. To overcome the economic crisis and reduce pressure on the economy, the government slashed development programs by 20-30%, resulting in the economy slow down, which has negatively influenced employment opportunities, production, and investment in the different sectors.
In the last half of 2018, imports decreased by 17% and Foreign Direct Investment (FDI) by 35%. If we glance over different sectors, there is a rapid decrease in investments and production. For example, cement production has shown a growth rate of -2% against the desired growth rate of 13%. Similar trends can be seen in agriculture sectors as well. Moreover, 4% FBR revenue was achieved against the set target of 14%. 35% depreciation in Pakistani rupee was a shock for many, which has multiplied our loans, and circular debt, accumulating to Rs 1.4 trillion.
The government’s mini-budget focuses on supporting domestic producer and limiting imports. It is a gamble and the coming few months will show its impact on the overall economy. Prices have almost doubled, mounting pressure on the common man. Furthermore, Moody’s Rating Scale is considering pulling our rating down, which will adversely affect investment in Pakistan. Therefore, it is fair to say that the help from our friends is not delivering the needed result. To overcome the challenges we are faced with, we need much more integrated effort, support, planning and implementation.
IMF is considered, and discussed more like a threat, than a tool to counter the situation Pakistan is facing. In fact, IMF support, if used strategically, with a proper focus and planning can prove to be an effective tool to counter challenges that we are faced with. It primarily aims to develop country’s capacity, increase the investor’s trust, and enhance the economy’s potential to attract FDI. The key to success here is the time, and terms of IMF negotiations. At the same time, the focus, and bargaining power of the nations seeking IMF’s help cannot be ignored.
Pakistan’s balance of payment issue is resolving with the support from our friends, but it is a reality that the crisis still exists. Moreover, we are in a better position to negotiate and bargain with IMF as we have contingency sources available at the moment. In case, God forbids we fail to pay back to our friends within the set time, we will lose this edge that we enjoy now, limiting our bargaining and negotiation power with IMF. PTI government is trying to adjust to the IMF requirements voluntarily, such as Pakistan rupee devaluation, which can go all in vain without IMF supervision.
PM Imran Khan considered “Naya Pakistan Housing Scheme”, the foundation of Pakistan’s future growth, development and prosperity. The scheme has the potential to generate employment, circulate money, mobilize various sectors, increase production, growth, development in multiple sectors, and sustaining the economy in the long run. The scheme won international attention, and the World Bank issued the first installment of $58 million for the “Naya Pakistan Housing Scheme”. The second installment of $70 million will be given to Pakistan later. To actualize its full potential, it is the right time to boost the investor’s trust and ensure ease of doing business. With the help of IMF support, this can be done easily. At the same time, this can add up to our potential to secure a good and agreeable deal with IMF.
Here it is important to understand why IMF is essential, and why Pakistan cannot climb the steps of success without IMF? Pakistan has a history of security issues, complex business processes and procedures, frequently increasing taxes, prices of oil and electricity, which makes the investment atmosphere uncongenial, and unfavorable. As the uncertainties regarding IMF still dominate the market, the investors are holding back their investment unless the situation gets clear, and they regain confidence in the Pakistani market. IMF can give that needed confidence to the investors so that they feel safe in investing in the market with economic challenges. An alliance with IMF will also have an impact on our market rating. All this is essential to mobilize the investor and highlight Pakistan as an emerging market with potential.
The Pakistan and IMF alliance has a history of failure. Pakistan has accepted IMF help almost 21 times. Particularly after the 1950s, the two have frequently joined hands after every three years with no success. It will be a challenge for the new government to ensure that this alliance should be the last one, and within three to six years, we can present ourselves as one of the IMF alliance success stories.
In my humble opinion, this is the right time to negotiate with the IMF, and develop a favorable package for Pakistan as we are in a better position to safeguard our interests. The success of this alliance will hugely depend on sincerity with Pakistan, focus, planning, out of the box thinking, transparency, cross board accountability, clear priorities, ensuring ease of doing business, security conditions, and keeping the people informed. Only then, Pakistan and IMF alliance can help the PTI government break out from the vicious web of increasing taxes, oil, and gas prices.