ISLAMABAD/Bali   -  The International Monetary Fund’s team will visit Pakistan in coming weeks to initiate discussions for a new loan programme to avert the ongoing economic crisis faced by the country.

Pakistan on Thursday formally requested the IMF for a loan programme. “Today, I met with Pakistan’s Minister for Finance, Revenue and Economic Affairs Asad Umar, Governor of the State Bank of Pakistan Tariq Bajwa and members of their economic team. During the meeting, they requested financial assistance from the IMF to help address Pakistan’s economic challenges,” said Christine Lagarde, Managing Director of the IMF in a statement issued in Indonesian city of Bali.

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

Addressing a news conference in Bali, Lagarde said she would require “absolute transparency” of Pakistan’s debts, including those owed to China. She said such disclosures were necessary to determine the debt sustainability of countries seeking IMF loans.

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 reporters when asked about Pakistan’s debts to China.

Lagarde said the IMF would need to know the extent and composition of a 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.

Sources aware of the developments said that the Pakistan government had planned to seek $7-9 billion from the IMF to avert the current balance of payments crisis. However, Pakistan and IMF during the upcoming visit would finalise the volume of the loan programme and the required conditionalities. The government is in desperate need of dollars to build its reserves. Pakistan’s foreign exchange reserves are sharply depleting due to repayment of previous loans.

Meanwhile, the country would have to repay $1.2 billion in two months (October and November), which would further erode the official reserves from existing $8.4 billion.

Prior to the talks, the government started to implement some of the demands of the IMF. The government and State Bank had recently allowed the rupee depreciation, which was one of the demands of the Fund. In interbank, the dollar value went up to Rs134.

The IMF during the recent talks with Pakistan had noted that government should devalue its currency by 15 percent during ongoing fiscal year. The SBP had viewed that the exchange rate of Rs137 to a dollar by the end of current fiscal year in June 2019 would be sufficient to address the challenges.

The sources further informed that government would increase the power tariff before the arrival of IMF team to Pakistan. The government is all set to notify the increase in power tariff after the upcoming by-elections, which would be held on Sunday (October 14).

The government had already enhanced the gas prices up to 143 percent. However, according to IMF, policies should include more exchange rate flexibility and monetary policy tightening, further fiscal adjustment anchored in a medium-term consolidation strategy, and strengthening the performance of key public enterprises together with further increases in gas and power tariffs.

The PTI government had held the previous government responsible for approaching IMF for loan programme. “The government inherited 6.6 percent of fiscal deficit, more than a trillion rupees of unaccounted for losses in the energy sector and an unprecedented and debilitating current account deficit running at $2 billion a month. To correct the underlying imbalances, fiscal and monetary actions needed to be undertaken without delay. In this regard, the Finance Supplementary (Amendment) Act, 2018 by the government and the policy rate increase by the State Bank of Pakistan are actions taken to stabilise the macroeconomic situation. In addition, regulatory duties on non-essential imports have had to be introduced to curb the unnecessary growth in imports,” the ministry of finance stated. After taking into account the current situation and consultation with the leading economists, the government decided to approach the IMF for economic recovery and its stabilisation.

If a package is agreed, it would be Pakistan’s 13th IMF bailout since 1988. The Fund lent Islamabad $6.7 billion in 2013.

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. 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 United States has criticized 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.

 

US REACTION

 

The US will evaluate on merit a bailout package sought by Pakistan from the International Monetary Fund, the State Department said Thursday.

“We understand that Pakistan has formally requested assistance from the IMF. As we do in all cases, we will examine closely all aspects, including Pakistan’s debt position, in evaluating any loan program,” a State Department Spokesperson said, reported Indian news agency PTI.

The spokesperson was responding to a question on the request made by Pakistan for an IMF package.

 

IMF to launch bailout

talks with Pakistan

 

 

IMRAN ALI KUNDI/Agencies