Pakistan may have to eat IMF humble pie again

By Mehtab Haider

ISLAMABAD: The biggest challenge lying before the government is to prevent Pakistan falling into the IMF programme during the current fiscal, as any slippages resulting into growing imbalance on external front will force the incumbent regime to seek Balance of Payment (BoP) support from the Fund.
“The government has envisaged imports growth in the range of 6.5 per cent and exports growth 16% for 2008-09 in order to curtail the current account deficit hovering around $13 billion. If any slippages occurred on external front, the government will be forced to approach the IMF again for seeking BoP support,” official sources confirmed while talking to ‘The News’ here on Sunday.

The rapid depreciation of rupee against another weaker currency US dollar has touched its low level of Rs 70.15 against one US dollar. The rupee is under extreme pressure because of depleting foreign currency reserves, which are now reported to be around $11.2 billion.

“The current account deficit surged up to $15 billion against foreign inflows of $10 billion, resulting into creating yawning deficit of $5 billion on account of external front in the last fiscal year 2007-08, ended on June 30, 2008,” the sources said and added that the government had to utilise $5 billion from its hard earned foreign exchange reserves to fill this gap.

How long can Pakistan afford to spend its precious foreign currency reserves in order to fill the gap? the sources questioned while pointing out that the foreign reserves had already depleted by over $5 billion in last few months. The sources conceded that there was no realisation of grave situation at the highest level of the PPP led coalition government so they were unable to devise damage control strategy.

Suggesting strategy to avoid falling into the trap of the IMF programme, the sources said that there were many ifs ands buts involved in it as the government would have to reduce its trade deficit by scaling down imports of all kinds of luxury items. The government has taken certain measures in the budget 2008-09 but there are requirements to take more actions on this front in the upcoming Trade Policy 2008-09, which would be announced on July 22, 2008.

“The privatisation process should be accelerated, the FDI should be encouraged,” said the sources and added in the same breath that after stabilising macroeconomic situation and normalizing heated political environment, Islamabad will have to again move into the bond market in order to arrange few hundred million dollars to bridge its yawning gap. If the government remained unable to take all these corrective measures, there will be no other choice but to seek the IMF support again, which will be a great insult for the whole nation.

Recalling the disgrace meted out by the multilateral creditors by imposing conditionalities, the sources said the World Bank Mission came to Pakistan before the announcement of the budget 2008-09 and their tone was changed as our all out efforts failed to get the desired results.

The WB, the sources said, is lending multilateral institutions but they were not ready to lend money without imposing very tough conditions. “If some one gives you money, you will have to comply with its conditions,” the sources commented. The sources opined that the government’s full attention was towards political issues but the biggest challenge was emerging on the economic front. “This government lacks the vision as well as the strategy to tackle crucial issues and without giving economy its first priority the complex issues cannot be resolved,” they concluded.

Source: The News, 7/7/2008

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