Khan calls on Pakistanis abroad to double the money they remit and help cash flow
▶ Plan to raise up to $40bn launched as price of IMF bailout threatens to derail PM’s populist campaign promises
Prime Minister Imran Khan hopes to ease the financial crisis facing his country by persuading Pakistanis overseas to double the amount of money they send home.
Mr Khan said he was drawing up incentives to encourage nationals abroad, including millions living in the Middle East, to increase remittances and provide vital foreign currency.
The country is in the grip of deepening financial woes and last week began talks with the International Monetary Fund for Islamabad’s 13th bailout since the late 1980s.
The move marked an about turn for Mr Khan’s government, which had spent weeks trying to obtain loans from Saudi Arabia and China, both of which baulked at the size of Islamabad’s problems.
An IMF bailout would come with tough conditions that would probably curtail his promises to overhaul health, housing and education by building a welfare state.
Mr Khan said overseas Pakistanis were an asset that could improve the country’s finances.
“We are going to announce a special package of incentives to encourage them to send remittances through banking channels by removing all hindrances and procedures,” he said.
“The Philippines did this successfully. Inshallah, by removing these hindrances we will be able to increase remittance flows from $20 billion (Dh73.46bn) to at least $30bn and perhaps even $40bn through banking channels.”
Mr Khan pledged to crack down on illegal land mafias preying on the property of Pakistanis living abroad.
An estimated 3.5 million Pakistanis live in the Middle East, including nearly 1.4 million in the UAE. The money they send back is a vital source of foreign currency in Pakistan, where reserves have plunged to the lowest in almost four years.
Mr Khan’s government has already considered issuing new bonds to attract investment from overseas.
Pakistan’s financial crisis has led to its current account and budget gaps widening, leaving the country needing to urgently raise up to $12bn.
“The sheer quantity in which the government needs resources is so large that no single bilateral partner can actually arrange for the entire amount,” said Khurram Husain, business editor at Pakistan’s leading English newspaper Dawn.
The failure has left Mr Khan at the mercy of the IMF, which is expected to demand painful reforms to break Pakistan’s boom and bust cycle. The fund will be wary of Islamabad’s failure to meet the conditions of past loans and the US will have a large say in lending.
“Today’s White House looks at Pakistan with great disappointment and they have made that disappointment clear,” Husain said. “Clearly, that unhappiness is going to spill over into the IMF programme.”
Jeremy Zook, associate director of Fitch Ratings, said: “I think the negotiations for an IMF programme will be quite tough this time. I think the current US administration has a large say in IMF lending policies so I think they are likely to put a significant amount of pressure on Pakistan.”
Cuts to public spending, devaluation of the rupee, ending subsidies to ailing state businesses and increasing taxes are all likely to be conditions of a bailout.
All of that will hit Mr Khan’s high-spending campaign promises.
“History tells us that whichever government has undertaken the kind of macroeconomic stabilisation that this government is about to undertake has paid a heavy, heavy cost politically,” Husain said. “They are going to pay a very steep price in terms of their popularity.”
Pakistan’s finances are likely to get worse before they get better, and negotiations with the IMF could take months, said Charles Robertson, global chief economist at Renaissance Capital.
“I have to say I have a some sympathy for Imran Khan,” he said. “No one should want to take power against such a tough backdrop where the first thing you betray are your promises to your voters.”