IMF approval

Review successful, but is a new programme on the cards?

That Pakistan has cleared the latest IMF review, as a staff-level agreement has been reached, should provide some comfort to the federal government, but it brings nearer the moment of reckoning, which is the end of the current programme. At the moment, all the government has to do is make sure that the IMF’s conditions are being met, and to explain away any conditions that have not been met. It has added the burden of a separate IMF Resilience and Sustainability Fund loan. As a result of the recent review process, Pakistan will now await the full IMF Board approval, which is virtually automatic, for the release of the two tranches amounting to $1.2 billion. Prime Minister Shehbaz Sharif has gone on record as saying that this loan programme would be the last, but a vital component of that outcome, has not so far happened. That was an increase in the inflow of foreign exchange; rather, exports have fallen, and the trade deficit has widened.

It should be remembered that the IMF lends to countries so that they might meet foreign exchange needs either for import payments, or debt servicing. Pakistan’s debt servicing needs are not going to go away after the current programme ends. They could have been met by increased exports, but the IMF programme, which included a plethora of detailed instructions, included no plan for increasing exports. It was almost as if the country was being set up to fail. The danger of another crisis looms, for without an IMF programme, there are only two means of meeting the country’s forex needs for debt servicing. One is to export enough. If the State Bank has enough forex sold to it by exporters, it can in turn provide it to the government in exchange of rupees obtained as revenue. The other is to borrow the needed foreign exchange from the money market. The IMF will probably seem the bet option.

It is perhaps symptomatic that the IMF’s solution for the disruption caused by the USA-Israel-Iran War was to stick to targets. The IMF did accept that there would be increased inflationary and anti-growth pressure, as well as current account problems, but its solution seems a little lazy, as if no one could be bothered to work out new targets. That is another why Pakistan might end up on another IMF programme.