More assistance as promised!

Three billion dollars will be deposited in the State Bank of Pakistan (SBP) in support of "the country's financial and monetary policy... and to enhance liquidity and monetary reserves of foreign currencies." This time around the information was released not by Prime Minister Imran Khan or Finance Minister Asad Umer but inexplicably by the United Arab Emirates Embassy in Islamabad - inexplicable because the UAE, like the other two 'friendly' countries notably China and Saudi Arabia, is known for reticence in making public any deal/assistance to foreign countries.
One would perhaps not be remiss in assuming that the Pakistani authorities requested the UAE to announce this assistance as there was a campaign to undermine the claims of "success" by the Prime Minister (followed by a joint press conference of the Foreign Minister and Finance Minister in which the latter claimed that the balance of payments issue was resolved reminiscent of the much ridiculed George Bush's Mission Accomplished claim) subsequent to their recent tour to the 'three' friendly countries. The objective of this request: to allay market fears that the government had no viable plan to deal with the looming debt repayments in 2018-19 estimated at 11 to 12 billion dollars and a current account deficit of 18 billion dollars that it inherited in spite of the fact that any deposit in the SBP would have automatically become public knowledge. Clearly Asad Umer's statements were not enough to appease the market, a lack of confidence of market forces in the Finance Minister which should be a source of serious concern to the Prime Minister.
Perhaps more importantly from the government's perspective the announcement by the UAE embassy was to give a shut-up call to independent economists, many of whom have been part of previous administrations with a legacy that is hardly positive, urging the Khan administration to go on yet another International Monetary Fund (IMF) programme as the country's external financing needs are around 30 billion dollars (external debt repayments due this year plus the current account surplus) and not the 12 or so billion dollars that they assume has been committed by the three friendly countries - as direct deposit in the SBP as well as through enhanced trade/investment and deferred oil payment facility. IMF loan, they have persistently argued would not only enable the country to access funding from other multilaterals, Asian Development Bank (ADB) has already stated that it would not extend policy loans (distinct from project loans which consist of the bulk of ADB assistance at present) if the country goes on an IMF programme; but more importantly from the government's perspective given its declared intention to issue Diaspora bonds, and the recent report that Umer is considering allowing the Power Holding Company to issue sukuk, which would raise debt equity, the rate of return would be lower if the country is on a Fund programme. These are valid concerns however four important elements may well reduce their relevance.
First is the assumption that China's assistance will not surpass that made by the two Arab nations individually. Geopolitical considerations would most likely impact on the extent of Chinese assistance to Pakistan - considerations that may include the ongoing trade war between China and the US where China appears to be seeking rapprochement with Donald Trump who is typically belligerent one day followed by a more conciliatory approach the next (further complicated by the arrest of Huawei's Chief Financial Officer in Canada on the request of the US for violating US sanctions on Iran) and the verbal attacks by senior Trump administration officials on China's One Belt One Road initiative of which perhaps CPEC remains the major component which is largely on course (though progress has slowed considerably since the Khan administration came to power). China may therefore be of greater assistance than is being projected by the independent economists however China is unlikely to release assistance without first reviewing a viable economic plan that maybe rather close to what an IMF programme would impose as conditions.
Secondly, a viable economic plan is required that remains missing to this day. Reports circulating at the time of the most recent IMF mission's visit (7-20 November) subsequent to a formal request for a package by Pakistan revealed that the government offered to raise revenue collection to 4.5 trillion rupees (with IMF insisting on 4.7 trillion rupees), agreed to raise petroleum prices (with the IMF insisting on 22 percent increase sadly the easiest form of raising revenue in use by previous administrations that had major negative implications on the costs of production and quality of life), and agreed to further discuss the exchange rate rise. More recently these figures have been quoted again as those proposed by the government to the IMF in writing with an additional figure of 10.5 percent interest rate, GDP growth of 3.9 percent, and inexplicably debt to GDP ratio of 75 percent (from the existing over 90 percent that is unrealistic to attain in one year) and a fiscal deficit of 5.6 percent. It is unclear whether the same figures have been quoted again as there has been no formal government reaction to these reports though the Finance Minister refuted them in a meeting he held with the Rawalpindi Chamber of Commerce. Be that as it may, these figures are unlikely to be acceptable to the IMF or indeed to China and emphasize the need for the government to formulate a viable economic plan and release it to further ease market fears. If such a plan has been prepared it has not been shared with the public which is the second element that has the capacity to reduce economists' insistence that Pakistan must go on an IMF programme.
The reported offer by the government to the IMF is that it: (i) would impose 190 billion rupee additional taxes (which can be challenged given Umer's penchant, like his predecessors', of over optimism in trying to generate revenue from sources that are simply not doable) and cut development spending which would impact on the growth rate and on all other macroeconomic indicators and thereby limit the deficit to 2.2 trillion rupees (reportedly projected by the IMF at 2.4 trillion rupees or 6.1 percent of the GDP even after January mini budget). Details of which taxes would be raised and which development expenditure curtailed are missing and, of course, this does not provide a comfort level given the measures announced by Asad Umer in his supplementary budget. This proposal, if true, is not likely to ease Chinese concerns about the Khan administration embarked on a credible viable economic strategy; and (ii) to deal with the current account deficit through currency depreciation to 150 rupee to the dollar which maybe backed by the UAE and Saudi Arabia injections to the SBP; but not for long as the export package released during the previous administration and continuing to date has had extremely limited success with exports July-November 2018-19 rising to 9120 million dollars (compared to 9004 million dollars in the comparable period of the year before) while imports declined to 23,633 million dollars (compared to 23818 million dollars in the comparable period of the year before). The trade deficit declined from 14814 million dollars in July-November 2017-18 as per the Pakistan Bureau of Statistics (with SBP giving the figure of 14503 million dollars) to 14513 million dollars in the period this year (14324 million dollars by SBP).
However, there are two positive features in this regard. First remittances have increased by a billion dollars - from 8021 million dollars last year to 9029 million dollars in July-November 2019 (though data for the current year is cited as provisional) and perhaps the rupee depreciation was one factor in higher remittance inflows. But remittances are unlikely to rise by much especially considering a general global decline in remittance income.
And secondly, the international price of oil is declining which may reduce our trade deficit though the government has reportedly proposed a raise in taxes on petroleum products to the IMF, a policy reminiscent of Ishaq Dar's tenure. Thirdly, the assumption that the volatile Trump will take a decision in Pakistan's favour after his letter to Imran Khan seeking assistance for talks with the Taliban maybe misplaced as would be the perception that the IMF's conditions would become less politically challenging as the request for the amount of assistance requested is lowered due to inflows from the three friendly countries. It is relevant to recall IMF managing director's statement during the annual meeting which was repeated in a recent press conference by the IMF Communications Director: "clearly debt transparency is essential to conduct proper analysis of the sustainability of a country's debt. That is what the IMF does when we are going into a program with our member countries. So that will be the case in Pakistan. I don't have the details of that, for the reasons I just mentioned, that the discussions are ongoing. But one of the things that we do in every program is to have a very detailed debt sustainability analysis to ensure that indeed the country's debt profile is sustainable."
Fourthly, the assumption that Diaspora bonds (giving donations to a worth while cause notably a cancer hospital is different from purchasing a bond as an investment for one's future), as well as issuing bonds as refund payments to exporters (which would do little to generate liquidity for exporters while raising the government's overall indebtedness) would raise debt equity. To lower a tax on shares (which incidentally are not purchased by the poor, the vulnerable or even low middle income earners of this country) defies logic. It is critical for the government to come up with a domestic viable home grown plan and that appears to be lacking.
The opposition in contrast is seeking the terms and conditions agreed with the three friendly countries which are almost certainly at odds with previous resolutions passed by the assembly in which the Pakistan Tehrik-i-Insaaf (PTI) played a prominent role. The question is what were the government's options? Default or ignore a resolution passed by the assembly with little argument in favour of the latter.
To conclude, it is a viable economic strategy that is missing, that remains missing and taken in conjunction with the fact that Umer's statements continue to not ease concerns but on occasion raise them, the Prime Minister needs to revisit his economic team.