Pakistan is expected to turn to China for assistance as the IMF loan negotiations remain deadlocked.
Pakistan is currently exploring alternative measures to prevent a full-fledged balance of payment crisis, in case the International Monetary Fund (IMF) continues to delay the revival of the delayed $6.5 billion bailout program. The nation, grappling with financial challenges and a population of over 220 million, may have no choice but to turn to China for assistance in rescuing its ailing economy.
According to a report in local daily, the IMF has adopted a cautious “wait and see” approach amidst the deepening political and economic crisis in Pakistan. However, this approach cannot be sustained indefinitely, as sources familiar with the matter highlighted. They emphasized that either the IMF program must be reinstated through the completion of the ninth review or abandoned altogether. According to the sources, it was emphasized that Pakistan will refrain from providing any further data to the IMF until the completion of the ninth review. It has been reported that Pakistan has already informed the Fund’s staff that if the review is not concluded, they will not share the budgetary framework for 2023-24.
In a concerning incident, a minister was approached by a Western capital’s ambassador who bluntly inquired about the expected meltdown of Pakistan’s economy. The minister, taken aback by the direct question, assured the visiting diplomat that Pakistan would never default. This incident, along with inquiries from the diplomatic community regarding domestic political affairs, underscores the gravity of the situation.
Against this backdrop, independent economists are recommending that the government make a final effort to revive the IMF program or turn to China for assistance in rescuing the struggling economy.
Dr Hafiz A Pasha, a renowned economist and former finance minister, stressed that if the IMF fails to move forward, Pakistan will have no choice but to request China’s help in devising a mechanism to avert a full-fledged crisis. He suggested exploring the use of the Asian Infrastructure Investment Bank (AIIB) as a potential instrument to assist Pakistan, even though it falls outside the AIIB’s designated mandate. Dr Pasha emphasized the need for an institution that assumes the role of an Asian IMF.
Dr Khaqan Najeeb, a former advisor to the finance ministry, recognized Pakistan’s efforts towards macroeconomic stability and the significant advancements made in successfully concluding the ninth review. However, he highlighted the weak position of the State Bank of Pakistan’s reserves, which stand at just $4.38 billion, as well as the precarious balance of payment position. These factors have made the IMF particularly cautious in ensuring that Pakistan’s financing needs are adequately met. Despite efforts, Pakistani authorities have been unable to convince the IMF on this matter.
Dr Najeeb also drew attention to the easing of imports, an area of concern for the IMF. The organization would prefer Pakistan to build reserves and relax administrative restrictions, as evidenced by the significant decline in imports in April compared to the previous year.
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Dr Najeeb emphasized that a staff-level agreement with the IMF could facilitate commercial and multilateral inflows, urging the IMF to consider this option. He added that Pakistani authorities could further refine their financing plan to ensure its effectiveness. Failing an agreement between the two sides, Pakistan would be compelled to continue with heightened import restrictions, further stifling the economy. In such a scenario, the country would heavily rely on borrowing and rollovers from friendly nations and explore available options elsewhere. However, Dr. Najeeb concluded that this is not the preferred course of action, as it would perpetuate a constrained economy.
In summary, Pakistan finds itself in a delicate position as it seeks to avert a balance of payment crisis. While efforts are being made to revive the IMF program, China is being considered as a potential alternative for providing the necessary assistance. The situation calls for careful deliberation and strategic planning to ensure the stability and recovery of Pakistan’s economy.
