External financing needs

Estimates of the immediate external financing needs of the country vary from between 12 billion dollars, as stated by the Federal Finance Minister Asad Umar, to 18 billion dollars by independent economists basing their estimate on the 19 billion dollar current account deficit (including loan and interest payments due on commercial/bilateral/multilateral debt as well as on the Eurbonds/sukuk issued by the previous administration), to 27 billion dollars required till the end of fiscal year 2018-19. Foreign exchange reserves, as a consequence, are sufficient to meet less than a month and a half of imports - a condition that has compelled many a reluctant government to seek an International Monetary Fund (IMF) bailout package for balance of payment support. These external financing requirements have prompted the numbers game in Pakistan in which several members of the cabinet, including the prime minister and the finance minister, have participated.
Asad Umar is on record as having stated that the balance of payment position has been effectively resolved subsequent to the return of the Prime Minister-led delegation to China - 6 billion dollars from Saudi Arabia (3 billion dollars to be parked in the State Bank of Pakistan for one year and an additional 3 billion dollar deferred oil payment facility for three years) and an identical amount from China to warrant Umar's statement (though actual figures based on a signed agreement have not yet been announced). The Prime Minister's recent trip to the United Arab Emirates (UAE) accompanied by his senior cabinet members as well as the Chief of Army Staff, Gen. Bajwa, is deemed to have been very successful in generating an additional 6 billion dollars though again the actual amount has not been released. There is no doubt that these three friendly countries are extremely reticent about announcing the actual value of an assistance package to any country and hence Pakistan Tehreek-e-Insaf (PTI) government has learned a valuable lesson and did not hold a press conference on the exact terms agreed.
However, irrespective of how successful the Khan-led administration has been to generate financial support from friendly countries, at whatever cost, the fact remains that not going on an IMF bailout package as a consequence is really not an option for the government for three major reasons as an IMF package: (i) opens up other multilateral/bilateral assistance - grant assistance or on concessional terms; (ii) improves the country's rating as the comfort level, with the government adhering to a politically challenging reform agenda, rises due to the quarterly strict monitoring of the agreed reform conditions associated with a Fund programme; this would also open up the option of issuing Eurobonds/sukuk as well as diaspora bonds under consideration by the incumbent government at competitive market rates; and (iii) foreign direct assistance (FDI) as well as portfolio investment are offshoots of being on an IMF programme and in this context, it is relevant to point out that the FDI fell by over 40 percent during the first four months of the current fiscal year in comparison to the comparable period of the year before.
The Khan-led administration is thus between the devil and the deep blue sea - the devil being the unsustainable option of defaulting on past loans that would lead to Pakistan's summary withdrawal from engagement with other countries (particularly those countries which account for the bulk of our exports) and the deep blue sea being isolation that would fuel the already unsustainable current account deficit, and compel the government to borrow domestically with a significant inflationary impact.
The IMF is therefore not an option but a necessity and reports subsequent to the IMF mission's visit to various stakeholders indicate that the programme on offer is extremely politically challenging and will fuel inflation (through a further increase in utility rates to achieve full cost recovery, reduce subsidies), enhance revenue which in the short-term would have to be through burdening the existing taxpayers, privatisation of large loss-making entities, including PIA and PSM, allowing the rupee to attain its market value, raise interest rates and last but not least, reducing expenditure where the axe has invariably fallen on development as opposed to current expenditure with a consequent negative impact on growth. Hence the return of the IMF mission without a staff level agreement on a programme, hopefully for the time being, as the country may have to consider such a programme in not too distant a future.