As the PTI government takes off this week, among the most noteworthy tasks on its immediate to-do list is addressing the plunging economic numbers. The prominent of these assignments would be mulling a bailout package – worth at least $12 billion – without which the economy can no longer sustain itself.
The worrying figures include the Pakistani rupee that has gone down by over 20% since December against the US dollar. This is despite a minor post-election recovery stimulated by a $2 billion loan from China.
Current account deficit hit $18 billion – 5.7 percent of the GDP – at the end of the last fiscal year. The budget deficit has crossed Rs2 trillion and there is another around Rs1 trillion worth of circular debt.
T-billions amounting to Rs4 trillion will expire in four months, and then there is an additional $8 billion in foreign debt servicing.
Before the elections, the stock exchange had hit this year’s lowest as it fell below 40,000 points – in the previous calendar year it had plummeted from being the best performing market in the continent to the worst in the world.
Therefore, an IMF bailout package – the 13th for Pakistan since the 1980s – is arguably the only option for the country to ensure sufficient influx of reserves to keep the economy afloat.
Considering the conditions likely to be implemented, while the energy prices are likely to shoot higher, the IMF package will bring much needed discipline to Pakistani institutions if implemented as it needs to be. For instance, Pakistan might have its first debt sustainability analysis, without which policymakers in our neck of the woods have gone for temporary – and equally unrealistic – bailout plans.
Even so, it’s important to reiterate that many of the financial numbers when downhill following the ouster of Nawaz Sharif as the Prime Minister last year. As is the norm in our neck of the woods, it is political instability that pulls the economy downwards, not least of all by clouding the investment climate in uncertainty and darkening the market sentiments.
While domestic politics has been a major hindrance in Pakistan’s economic growth, Islamabad currently finds itself in the middle of a well-established global warfare, with the IMF having long become a US-China proxy battlefield. Islamabad is feeling the diplomatic heat of this war, and is likely to face a tough choice very soon.
Earlier this month, US Secretary of State Mike Pompeo warned the IMF against a bailout package for Pakistan that could benefit China. “There’s no rationale for IMF tax dollars, and associated with those American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” he said.
While it is of course impossible that the IMF would ask Pakistan to not trade with China, what is likely to happen is that the Fund would ask for transparency related to CPEC projects, considering this is the primary source of Pakistan’s trade deficit.
The ongoing balance of payment predicament that Islamabad is faced with is owed primarily to the rapid hike in imports, most of which are CPEC related. The imports were valued at a record high of $60.898 billion at the end of the last fiscal year.
Now considering the magnitude of the imports from China, and the relatively negligent exports, the gap continues to bulge. And since this is the primary source of the trade deficit, the IMF wants to monitor if the money isn’t being lost in the usual extracurricular activities.
But, of course, the bigger picture here is the US wanting to keep tabs on China’s financial dealings. And by putting Pakistan under the radar, the IMF could potentially hit Chinese numbers as well.
What is being trampled as the global giants draw their economic weapons, amidst the echoes of trade war drums, is Pakistan’s economic future, which owing to decades of criminal negligence is completely devoid of any sovereignty.
The writer is a Lahore-based journalist.