Pakistan is exploring alternative strategies to stave off a full-blown balance of payment crisis should the International Monetary Fund (IMF) continue to delay the reactivation of its suspended $6.5 billion bailout program.
Pakistan’s daily English newspaper, ‘The News,’ reported that the financially strained country of over 220 million might have to request China’s assistance in formulating a plan to rescue its faltering economy.
With Pakistan’s deepening political and economic crisis, the IMF has adopted a wait-and-see approach, which cannot be maintained for long, ‘The News’ source claimed. Therefore, they believe the IMF program must either be revived by completing the ninth review or abandoned entirely. Further, Pakistan has reportedly told the Fund to conclude the review, or they will not share the budgetary framework for 2023-24.
The sources revealed an incident where a Western capital’s ambassador bluntly asked a minister when Pakistan’s economy was anticipated to collapse. The minister was taken aback by this query but assured the diplomat that Pakistan would not default.
Read: Pakistan Will Not Default, Regardless of IMF Loan Status, Assures Finance Minister
Given these circumstances, independent economists advise the government to make a final attempt to revive the IMF program or explicitly seek help from China to salvage the floundering economy.
Dr. Hafiz A Pasha, former finance minister and prominent economist, noted that if the IMF doesn’t progress, Pakistan may have to request China to create a mechanism to prevent a full-scale crisis. He suggested the Asian Infrastructure Investment Bank (AIIB) could potentially assist Islamabad, though it is not within its mandate, essentially playing the role of an Asian IMF.
Dr. Khaqan Najeeb, the former finance ministry adviser, acknowledged the country’s efforts for macro stabilization and completion of the ninth review. However, given the weak position of Pakistan’s reserves at the State Bank, currently at just $4.38 billion, and a precarious balance of payment situation, he stated that the IMF is exercising caution to ensure that financing needs are adequately met.
Read: Pakistan’s Economic Quandary: IMF Calls for ‘Significant Additional Financing
Najeeb also mentioned the reduction in imports. The IMF would likely want Pakistan to build reserves and ease administrative restrictions, which have cut Pakistan’s imports in April (year-on-year) to merely $2.9 billion, according to the Pakistan Bureau of Statistics.
Najeeb suggested that an agreement at the staff level with the IMF could facilitate commercial and multilateral inflows. However, should an agreement not be reached, Pakistan might have to maintain strict import restrictions, continue with a stagnant economy, and seek loans and rollovers from friendly countries and other sources wherever possible. Therefore, he concluded that Such a scenario is not Pakistan’s preferred option.
Additional news input was taken from “The News.”
