IMF con­di­tion­al­i­ties

The Pak Banker - - FRONT PAGE -

The chief of the In­ter­na­tional Mon­e­tary Fund, dur­ing the re­cently held World Bank/ IMF an­nual meet­ing in In­done­sia cat­e­gor­i­cally said that the Fund 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... if and when we con­sider a pro­gramme." This was a ref­er­ence to Pak­istan as it came in the wake of Fed­eral Fi­nance Min­is­ter Asad Umar for­mally re­quest­ing an IMF bailout pack­age dur­ing the an­nual meet­ing. Chris­tine La­garde's state­ment is rem­i­nis­cent of the warn­ing by the US Sec­re­tary of State Mike Pom­peo de­liv­ered on 30 July in a tele­vi­sion in­ter­view, five days af­ter Pak­istan Tehreek- e- In­saf ( PTI) emerged as the party likely to form the next gov­ern­ment, that any po­ten­tial IMF bailout pack­age to Pak­istan should not pro­vide funds to pay off Chi­nese lenders with an un­am­bigu­ous ref­er­ence to terms of en­gage­ment un­der the China Pak­istan Eco­nomic Cor­ri­dor ( CPEC).

To quote Pom­peo: "Make no mis­take. We will be watch­ing what the IMF does. There's no ra­tio­nale for IMF tax dol­lars, and as­so­ci­ated with that Amer­i­can dol­lars that are part of the IMF fund­ing, for those to go to bail out Chi­nese bond­hold­ers or China it­self." The grow­ing num­ber of crit­ics of the PTI's eco­nomic poli­cies to- date pointto the irony that the Amer­i­cans were aware of the lack of fund­ing op­tions well be­fore the PTI's eco­nomic team was. Be that as it may, La­garde con­firmed on 10 Oc­to­ber that Pak­istan had for­mally re­quested fi­nan­cial as­sis­tance dur­ing her meet­ing with fi­nance min­is­ter and State Bank of Pak­istan Gover­nor and added that "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."

The de­mand by the IMF is not un­ex­pected. Ex­perts have long de­manded to make all deals un­der CPEC trans­par­ent es­pe­cially in light of the coun­try's ris­ing im­port bill specif­i­cally at­trib­uted to CPEC projects that was gen­er­at­ing an ever- in­creas­ing trade deficit and con­se­quently cur­rent ac­count deficit. The ar­gu­ment pre­sented by Ah­san Iqbal, the then Min­is­ter for Plan­ning, De­vel­op­ment and Re­forms that once the CPEC projects are com­pleted Pak­istan would join the ranks of the emerg­ing economies was ar­guably not eco­nom­i­cally sound given the speed at which im­ports rose and ex­ports plum­meted. To­day, the cur­rent ac­count deficit is in ex­cess of 18 bil­lion dol­lars.

The PML- N gov­ern­ment, once the IMF pro­gramme ended ( Septem­ber 2013- 2016), be­gan to pro­cure loans from China, with other sources re­luc­tant to lend to Pak­istan as their com­fort level with re­spect to the coun­try stay­ing the re­form course eroded. The PML- N ad­min­is­tra­tion pro­cured over 13 bil­lion dol­lars in short- term loans from China, at high rates of re­turn and very short amor­ti­za­tion pe­riod that ac­counted for a mas­sive rise in our an­nual debt re­pay­ments. In ad­di­tion, trade fig­ures be­tween the two coun­tries were mas­sively in China's favour with our ex­ports to China around 1.5 bil­lion dol­lars while our im­ports from China rose to 15 bil­lion dol­lars. In other words, there is a need to re­visit both the terms of en­gage­ment un­der CPEC ar­range­ments and the trade deficit with China.

The PTI was ex­tremely crit­i­cal of the PML- N when it was in op­po­si­tion for lack of trans­parency in all deals with for­eign gov­ern­ments - be they with China or be they with Qatar. While nei­ther China nor Qatar is known to sup­port pro­vid­ing de­tails of their agree­ments with other coun­tries yet there is no al­ter­na­tive to trans­parency in a democ­racy and one would hope that the PTI gov­ern­ment would pro­ceed to make good on not only its man­i­festo prom­ises but also those made dur­ing its days in op­po­si­tion.

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