Since the creation of Pakistan, its policy makers, politicians, and the rulers, all have been struggling to manage its balance of payments, but with the few exceptions, Pakistan had no choice but to ask the global lenders for the financial aids. This practice has been going on since the first borrowing request was made in 1958, just a few years after joining the IMF in 1950. And this was the beginning of the practice that has never stopped!
Diving deeper into Pakistan’s economy one finds out that in its entire history there have been only just two occasions when Pakistan produced account surpluses (more exports than imports) and thus did not have any need to go to the IMF, World Bank (WB), Asian Development Bank (ADB), etc., for financial assistance. Incidentally, however, in both these periods, the country was ruled by military strongmen but under the guidance of highly qualified, respected, and experienced economic teams.
Currently, Pakistan is the fourth-largest debtor of the IMF, with a total outstanding debt of $7.85 billion. To address the economic contraction and global inflation in the aftermath of the Covid and further fuelled by the Ukraine-Russia war, the IMF has recently approved 1.1 billion to address these devastations and to avert yet another imminent default.
As of 2021, Pakistan is servicing its debt by borrowing the funds at a rate of 8.7%, which is much higher than of other nations in the same socio-economic group. For example, Bangladesh is financing its debt at 7.3% rate, which is about 16% lower than Pakistan’s.
This clearly shows that Pakistan is paying millions of dollars just to service its debt even before making any payments to reduce its borrowed principals. For this persistent parasitic ailment cause, everyone points finger to others, but no one seems to have courage and political will to correct it by charting out sound economic, investment and industrial policies.
The lender agencies provide free of charge unbiased advice after carrying out their own due diligence every so often that even if the recommendations have been implemented in every tenth year, Pakistan would have been out of its economic miseries, like Bangladesh, Vietnam, Malaysia, Indonesia, and other countries have successfully demonstrated!
Fast forward, during the Covid pandemic, Pakistan along with every country regardless of their social and economic status, they all have suffered through the economic contractions due to the lockdowns of their entire economies.
On the other hand, middle and the lower middle-income countries like Pakistan were devastated much deeply compared to the others due to the onslaught of the Covid virus on its population due to lack of sustainable national healthcare system.
Additionally, the lack of healthcare infrastructure to monitor and control Covid spread, having no clear vaccines’ commitments and its availability (in terms of quantity and timings) and experience in vaccination of the population on a massive scale made the things worst. These factors made it impossible to maintain any level of economic activity, particularly for the daily wage earners who make up majority of Pakistan’s population.
In the aftermath of the Covid and its depredation, Pakistan has been working closely with the IMF and other lender agencies to get more funding to sustain its economic activities and provide means for its population of over 220 million people for their daily lives’ needs.
However, to get any additional fundings, Pakistan has experienced very strong headwinds. To get the promised loan amounts from the IMF, like any other donors, the IMF had put very stringent certain conditions before releasing any next tranche of money.
However, it is fair to say that Pakistan has always come short to satisfy all the IMF conditions in order to secure the promised funds. In addition to the tax reforms and subsidies to the energy and power sectors, corruption, money laundering and tax collections have been the major shortcomings and roadblocks for getting the IMF fundings.
And these situations, like prior to the Covid and its post pandemic, have been creating a balance of payment crisis and in turn creating liquidity problems for the country. But with the timely financial assistance from China and brotherly countries like Saudi Arabia and the UAE, Pakistan has been able to dodge liquidity crises time and time again.
Miraculously, the current coalition government under the prime minister Shehbaz Sharif has been able to secure the eighth tranche of the funding from the IMF and this could have been sufficient enough to take care of the balance of payments at some reasonable level.
However, the devastating floods in the country have created a situation that was unexpected and brought further financial hardships for the government. Even though, a large number of countries and institutions, including the United Nations, have acknowledged that these devastating floods were caused by the global warming and these kinds of events will continue to happen if the industrialised economies, the major producers of the greenhouse gases (GHG), one of the major causes of the global warming, not take the climate change challenge seriously.
Many countries have given generous donations but not enough to take care of the entire devastation created in the aftermath of floods. Under the leadership of the current coalition government, Pakistan has brought back a former finance minister, Ishaq Dar, whose public statements about the donor agencies, including the IMF, are found to be unsavoury, to say the least. Therefore, the country is now required to battle a much stronger headwind
For the additional fundings, the IMF has asked Pakistan to provide a blueprint to show how it will handle the floodings in the future to reduce the level of the devastation it has experienced during the recent floods! This situation has created an unprecedented impasse between the IMF and Pakistan and if it persists for long time, there will be additional frictions between Pakistan and multilateral agencies, including the IMF. This means the “lifeline” will continue to get weaker with more stringent conditions, much higher interest rates than those for others and reduced amounts of fundings, resulting in balance of payments and liquidity crises more frequently!
Copyright Business Recorder, 2022
The writer is Executive Director, Polykemya International
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