IMF: lender of last resort-I

From 1947 to 2018, the IMF and its allied institutions have acted, very frequently as 'Lenders of Last Resort' for Pakistan to balance trade imbalances. This is a fact that cannot be denied. As a state, we have not undertaken concrete steps in the last seventy years to overcome our constant trade imbalance. In financial terms, this is not a rocket science. This is simply a gap between receipts and payments in forex, on account of our foreign trade in goods and services. As a usual national rhetoric, we talk about this 'regular' lender whereas after every decade, we again knock the same door for our rescue. In this author's view, the IMF, in principle, has helped us every time we messed up our affairs. We can write hundreds of pages on this subject, however, it is important to understand the basic issue and its sustainable solution instead of discussing the creditability of lender of last resort.
Why we end up in this crisis after every decade? In fact, a shortfall occurs every year and almost after a decade or so, we reach a stage close to an unavoidable situation, as we are today. This is unfortunately our economic history. Is there anything strange about it that we always fail to foresee the impending crises? Or is there something that we ignore at our own peril for various reasons? In this author's view, there is nothing unusual in relation to the need for financial support in the form of forex borrowing and the compulsion to opt for this only source of borrowing. We will continue to borrow in the foreseeable future unless we correct the fundamental economic structure of this state, especially its trade imbalance.
The crux of the problem is that as a country, a government can always print rupee; however, trade imbalance is to be met through dollars, which is not our currency and we cannot increase its supply unless there is a meaningful exchange with foreign countries. This reality we have to face and there is no excuse to evade it.
A fundamental arithmetical analysis has been made to understand the fact that irrespective of the government in power (in person or kind) in Karachi and Islamabad respectively [from 1947 to 2018] this trade gap has neither been filled nor any concrete effort has been made to solve this problem on a sustainable basis. The fundamental question is whether or not we as a state shall continue with our past policies or something really corrective should be done? This is the subject matter here.
From 1947 to 2017, during the period of 70 years in Pakistan, there had been an excess of 'imports' over 'exports' by approximately USD 300 billion. In other words, our imports in value exceeded value of exports by this sum of USD 300 billion. The yearly break-up of the aforesaid sum on record in State Bank of Pakistan's Statistical Report on Pakistan economics in the Chapter of Trade Balance. Out of this amount of USD 300 billion, over 200 billion belongs to the last fifteen years. [Qarz ki peetay thy mein].
Except for a few years of the Korean War, there were very years after 1977, when there was a positive trade balance of Pakistan. This overall shortfall of around USD 300 billion has been partly compensated by workers' remittances of around USD 125 to 150billion in the last seventy years. This leaves a balance of USD 150 billion. This balance has been met by loans, aid and grants and the reserves in hand.
Pakistan's foreign debt is around USD 80 billion. The resultant balance of USD 70 to 80 billion has been received as loan, Foreign Direct Investment or as aid or grant. The story is simple; the trade imbalance has never been balanced and is not expected to be balanced unless we change our national economic policies and our consumption and spending priorities.
If we continue on the same system then the resultant question is whether and from where we will get the loans; and is there any chance of aid in future. We should not mix up CPEC with this fundamental error. Secondly, is there any possibility of substantial FDI and its sustainability unless there is correction in Pakistan's trade imbalance? It is also a fact that inflows of dollars during wars in 1979 and 2001 (the Afghan War and the War against Terror) have actually helped us overcome our perennial foreign currency crisis. There was a net inflow under the Coalition Support Fund. Nevertheless, we, as a state, cannot afford any more wars. That kind of adventure would be suicidal.
This is the official side of the story. There is another semi-official side of the picture.
All the estimates agree Pakistanis own around USD 120 to 150 billion outside Pakistan. This amount was taken out from Pakistan or was required to be received in Pakistan that was not received. The 'Panama Leaks' and other revelations are evidence or indicators of the said trend. At one time, a figure of USD 200 billion was floated from a very high official quarter as Pakistani citizens' offshore bank accounts. This author does not agree with this figure of USD 200 billion in cash. However total value of USD 150billion held abroad appears to be a valid estimate. We have to correct our system that there is no further unnecessary outflows. Unless we take into account the movement of foreign exchange under unrevised the Protection of Economic Reform Act (PERA), 'hawala' and hundi transactions and the financing of Afghan Transit Trade in Pakistan's foreign exchange system, the whole picture of foreign currency inflow and outflow cannot be completely comprehended. This matter has been handled in an earlier article in this paper.
Without prejudice to the same, if we take into account the undisclosed foreign assets of Pakistanis there would not have been any need for help from the IMF for present borrowing, and persistent desire for FDI. In other words, we are a 'poor country' with some 'rich people'. In an earlier article, carried by this newspaper last month, with reference to foreign exchange accounts, reasons and the manner of outflow of funds from Pakistan have been discussed, including the identification of the ways and means to check the undesired flow of foreign exchange from Pakistan in future. However, the present article relates to the subject of trade imbalance and it negative effects.
(To be continued)