Pakistan has a long history of signing IMF programs to address its balance of payment crises and structural economic imbalances. There is much talk about imitating IMF recipe practiced in Egypt recently to address Pakistan’s lingering balance of payment crises and other structural adjustments issues. So, there is a need to compare and analyze the macroeconomic indicators of both the countries and to gauge the outcomein our case.

Egypt sought three year loan worth US$ 12 billion under Extended Fund Facility in 2016. Central Bank of Egypt freely floated the exchange rate after entering the program with IMF which raised the value of US$ against Egyptian pound approximately more than 90% immediately. This massive depreciation of currency along with removal of subsidies on energy raised the headline inflation to 33%. Egypt was experiencing fiscal deficit of 12.5% of GDP and current account deficit was approximately 14.5 US$ billion in 2016-17.The interest rate touched peak of 19.25% in July, 2017. Slight improvement in current account deficit is observed that can be attributed to precipitous decline in currency value which resulted in enhancement of foreign remittances and boosted tourism but trade deficit is barely perceptible to notice. Fiscal deficit of Egypt is still more than 8.5% of the GDP and debt level has increased more than 150% during the IMF program. Its foreign exchange reserves increased from 26 billion US$ to 42.5 billion US$ on the account of phasing out capital controls.

In the case of Pakistan situation is not as grave as Egypt was passing through. It holds international reserves approximately 10.3 US$ billion and current account deficit is more than 4% of GDP and fiscal deficit is 7.2% and short term liabilities are 14.74 billion US$. Trade deficit from July 2018 to 31st March 2019 is 23.6 US$ billion. In Pakistan REER is approximately around 100 whereas in Egypt REER was 130 and dropped immediately to 80. It is anticipated that REER would touch 80 to 85 in the case of Pakistan which will translate the rupee value against US$ around 165 to 175 as SBP is moderately allowing upward adjustment in dollar exchange rate after switching to floating exchange rate regime. The devaluation of rupee will trigger another round of inflation (CPI 10 to 12) which will force policy rate to touch 15% as it is already 13.25%. Pakistan’s economic malaise stems from its dependence on imports. The country lacks a competitive export basket of higher value-added items, with cotton products, leather and rice accounting for 69 percent of exports. In the other direction, Pakistan imports large quantities of machinery, electronics, metals and oil-it’s most expensive import-which together account for half of Pakistan’s $60 billion in annual imports. As a result, Pakistan has run a persistent trade deficit, which totaled $36 billion in 2018.

The current IMF program will enable Pakistan to generate 3 to 4 billion US$ through dollar bond.There is expectation to raise funds through carry trade in debt securities.Similar phenomenon was observed in Egypt where the country received US$ 20 billion in inflows in local debt from foreign investors.With the IMF program funds (5 to 6 US$ billion) from Asian Development Bank and World Bank will flow to add international reserves. In the last IMF program Pakistan raised a total 2.5 US$ billion in Euro bonds. IMF conditionality is always severe and hard to adjust;therefore Pakistan has long history of early exits from most of the IMF programs. Like earlier programs, the condition of the latest IMF program are: to reduce budget deficit by increasing indirect taxes; raising utility tariff;decreasing the losses of SOEs by aggressive privatization and eliminating tax exemptions including the most critical conditionality of floating exchange rate regimehas been phased in which is expected to put tremendous pressure on Pak rupee-US$ parity and will push rupee value against US$ to 165 to 175 at the end of this fiscal year.

There is a sharp hue and cry in the electronic and social media about dwindling Pak currency, decline of Pakistan Stock Exchange, and weak administrative controls which are causing un-warranted price hikes, hoarding of stocks and frustration among masses.The political milieu is also not encouraging. Opposition parties are joining hands to give tuff time to the government which will in turn stagnatethe economy and deepen the crises. How to ease out the situation for the common man? All this led to economic slowdown and breeding of distrust among various stakeholders of the economy. Pakistan’s economy is characterized by frequent boom-and-bust cycles. After the latest spell of growth, rising fiscal and trade deficits are now forcing the government to cool the demand for imports and implement austerity measures. Implementing these measures will slow growth, creating opportunities for the political opposition.