Pakistan has decided to engage with the IMF after an in-house assessment found that the benefits of getting a bailout programme outweigh the cost that the country may have to pay, including some compromises on economic sovereignty.
Pakistan has invited a team of IMF experts to visit the country by the end of this month as its economy faced a balance-of-payments crisis, a media report said Tuesday.
Pakistan has decided to engage with the IMF after an in-house assessment found that the benefits of getting a bailout programme outweigh the cost that the country may have to pay, including some compromises on economic sovereignty, the Express Tribune reported.
A fresh assessment by the State Bank of Pakistan (SBP) and the Finance Ministry showed that Pakistan needed USD 11.7 billion to service its external debt in current fiscal year 2018-19.
Pakistan’s gross external financing requirements have been assessed at an alarming level of USD 31 billion by the finance ministry. This is based on the assumption that the current account deficit will touch USD 18.5 billion, the report said.
After doing an in-house analysis, spanning over two weeks, Pakistani authorities have decided to invite an International Monetary Fund staff-level team, the paper quoted sources in the Ministry of Finance as saying.
They said Finance Minister Asad Umar has already contacted IMF’s Director for Middle East and Central Asia Jihad Azour.
Umar told the paper that the IMF staff-level team would visit Pakistan by the end of this month.
Engagement with the IMF should not be directly linked with any kind of formal programme talks, said Umar, while explaining the purpose of the IMF team’s visit.
He said in case Pakistan plans on getting the IMF programme in future, the upcoming engagement would save time that is often required for exchange and validation of macroeconomic numbers.
The minister underscored that the IMF staff-level visit did not mean Pakistan has decided to avail a bailout from the multilateral lender.
Sources said the decision to invite the IMF staff-level team was aimed at keeping both options open.
“The communication is happening all the time on a routine basis at different levels,” said IMF Resident Representative to Islamabad Teresa Daban.
Quoting sources, the report said Prime Minister Imran Khan’s visit to Saudi Arabia next week and follow-up visits by the Saudi monarchy to Islamabad will be a determining factor in taking a decision on whether to avail an IMF bailout.
They said that China was also helping Pakistan for protecting the China-Pakistan Economic Corridor (CPEC) deals from scrutiny by external elements.
Interestingly, US Secretary of State Mike Pompeo had warned in July that Washington had serious reservations about the IMF giving money to Pakistan due to concerns Islamabad would use the cash to repay Chinese loans.
The decision to request IMF to send a staff-level mission was rooted in an in-depth assessment of Pakistan’s gross external financing needs for fiscal year 2018-19 and benefits and cost of availing an IMF programme, the report said.
The joint assessment made by the central bank and the finance ministry was presented to Prime Minister Khan last week and after that the finance ministry decided to invite the IMF team, the report said.
According to Bloomberg, Pakistan has availed 12 IMF bailouts since the late 1980s. The last one was in September, 2013 when the IMF approved a USD 6.6 billion loan support to Pakistan government’s programme to stabilise its economy and boost growth while expanding its social safety net to protect the poor.
The administrative and regulatory measures that will be taken may lower the current account deficit by about USD 4 billion to USD 14 billion, the sources said.
Against USD 31-billion financing requirements, the available financing is only USD 20 billion, which is inclusive of USD 13.2 billion projected borrowings and rollover of USD 2.8 billion short-term debt, the sources said, adding this still left the government with a financing gap of USD 11.1 billion.
An IMF bailout could immediately avert the balance of payments crisis, the report said.
This will also open cheap financing lines from the World Bank and the Asian Development Bank (ADB), it said, adding, the programme will increase the country’s credibility in the eyes of international creditors.
The government’s internal assessment showed that the current level of foreign exchange reserve of USD 9.9 billion was sufficient for only 1.8 months of import cover. These reserves are inclusive of USD 6.6 billion of forward swaps.
In October 2016, Pakistan had USD 18.9 billion reserves that were enough to provide import cover for four and a half months. But those reserves had been built by contracting expensive foreign loans, the report said.