The Crown Prince of the United Arab Emirates, Sheikh Mohammed bin Zayed Al Nahyan, announced a $6.2-billion bailout package for Pakistan during his visit to Islamabad on Sunday.
The package, which was agreed during Pakistan Prime Minister Imran Khan’s trip to the UAE in November, includes a $3 billion deposit in the central bank reserves and another $3.2 billion in oil supplies.
The announcement comes a little over two months after Saudi Arabia announced a similar package worth $6 billion to Pakistan during the crisis over the killing of Saudi journalist Jamal Khashoggi in Istanbul.
The funds are designed to help Pakistan address a crippling balance of payments problem, which saw the rupee hit an all-time low last month against the US dollar for the sixth time in 12 months.
Pakistan’s current account deficit has touched $15 billion, with another $12 billion worth of debts still needing to be repaid. Fitch Solutions predicts Pakistan’s budget deficit will rise to 6% in the ongoing fiscal year, a 0.2% increase from the previous year.
IMF bailout no.13 for Pakistan?
Analysts say the financial crisis makes a bailout from the International Monetary Package (IMF) necessary for Pakistan, which would be the 13th time the country has needed such support.
The Pakistan Tehrik-e-Insaf (PTI) government has been negotiating a package with a team from the IMF since coming to power in August.
Finance Ministry officials revealed that cutting off artificial support for the rupee was one of the conditions for such help, which Islamabad has duly complied with. However, officials said a major stumbling block in the negotiations has been Pakistan’s agreements with China, details of which the IMF sought last month.
“A lot of the balance of payments crisis stems from the China-Pakistan Economic Corridor (CPEC) agreements, which have increased our import bill. The IMF team wants us to work on increasing our exports,” a government official told Asia Times.
In September, the PTI government requested a rejig of trade pacts with Beijing, when Chinese Foreign Minister Wang Yi flew in to Islamabad for a three-day visit. Diplomatic sources said later the request was shot down by Beijing during Imran Khan’s visit in November.
Former finance minister Rana Afzal Khan said Beijing would not agree to rejig the trade agreements.
“But they will give Pakistan more financing for the sake of their investment in CPEC. That appears to be the government’s plan as well, so that it can dodge the IMF bailout,” he told Asia Times.
“Perhaps they wanted to control the deficits through some increase in exports, reduction in petroleum imports and large chunks of loans from other countries. But these short-term loans are going to become a huge liability in 12 months’ time. And if they think they can get these payments deferred next year, the IMF is definitely not going to buy that”, he added.
However, former caretaker finance minister Salman Shah believes Pakistan has little option but to go to the IMF.
“Even if we get more loans from China, we would still need the IMF bailout to overcome the deficit, even if not as much as we would’ve needed initially. Also, the IMF program would have a positive impact on financial markets and [the package] would also boost Pakistan’s international credibility,” he said.
IMF reforms ‘the hard part’
Shah concedes that the biggest challenge for Pakistan would be putting reforms demanded by the IMF in place.
“Pakistan would have to stay within its [bailout] quota, but the main issue is the reforms agenda that it would be asked to follow, even though the reforms are designed to address root causes and help ensure that the financial crisis doesn’t resurface,” he said.
Islamabad has had hiccups in dealing with the crisis, as indicated when the Federal Information Minister Fawad Chaudhry, in a tweet sent out on January 2, refused to recognize the hiring of Farrukh Saleem, the Government Spokesperson on Economy and Energy, three months after he was appointed.
Clarification is needed @SaleemFarrukh is not spokesperson of the Government. We ought to have appointed Dr sb Govt’s Spokesperson on economy but later it transpired that PM office has banned any hirings so his Appointment could never transpire, he is free to have any opinion https://t.co/SrQiJnNJD7
— Ch Fawad Hussain (@fawadchaudhry) January 2, 2019
Saleem, who was critical of the government’s indecisiveness since his appointment in October, had attended meetings at the Prime Minister House till December 24, and gave several interviews in the capacity of the government’s spokesperson.
When asked about the government’s refusal to acknowledge his appointment, Saleem said: “I wouldn’t say a single word in my defense. What actually happened is an open book that you can go through a visit to the Board of Investment or through following the news on [state owned] Radio Pakistan or PTV.”
‘No long-term plan’
Saleem maintains that the government lacks a long-term plan on how to solving the country’s economic crisis.
He said: “Instead of curing the ailment, we are trying to hide it through the borrowing. This is no treatment, no matter how much money we get from Saudi, UAE and China. It’s like taking medicine for a headache when you have burning pain in the liver.”
When asked about the UAE package, Saleem said: “If they are offering money, that obviously means we will have to do something in return.”
This could see an increase in Islamabad’s involvement in the Middle East. Riyadh has already asked Imran Khan to back the so-called Islamic Military Counter Terror Coalition, while Pakistan may boost its deployment of troops along the Yemen border.
Enhancement in military assistance has been the usual demand from Saudi Arabia and the UAE in exchange for financial assistance.
Rana Afzal Khan feels it is a big price to pay for relief from the IMF bailout conditions. He said: “When you can take expensive loans from one side, why can’t you take them from another? Just because the IMF conditions require planning, especially with regards to the circular debt. The government has no roadmap to address the deficit, for state-owned enterprises, export and business development, or even the 5 million houses project that it has announced.”