EDITORIAL: Federal Finance Minister Ishaq Dar during the meeting of the Senate Standing Committee on Finance reiterated that with or without the International Monetary Fund (IMF) programme, Pakistan will not default on external payments and insinuated blackmail to bring Pakistan at par with Sri Lanka before concluding an agreement, with an unambiguous reference to geopolitics.
That he is unlikely to have made this statement without unequivocal support from his party’s high command stands to reason that it may well be rooted in politics and the impending elections.
However, there is a need to determine the impact of finance minister’s rationale on not only the country’s key macroeconomic indicators (including the current account deficit that may leave little option but to seek the twenty-fourth IMF programme) as well as on the general public already struggling under a consumer price index of 38 percent, and a negative 9.39 percent large-scale manufacturing July-April 2023 growth that is fuelling unemployment and pushing thousands more under the poverty thresh hold with only 48 billion rupees additional earmarked for the Benazir Income Support Programme (BISP).
Shifting geopolitical considerations have been evident since the eruption of irritants in Chinese-US relations ranging from trade to hegemonic power rivalry. Russia, isolated by the US-led Western powers after the war with Ukraine, has forged closer trade ties with China and within BRICS (Brazil, Russia, India, China, South Africa) the clamour is for increasing trade in non-dollar currencies, particularly yuan and rubles, a stance supported by at least 35 other nations with the list growing.
Much to US and Israeli concerns China successfully brokered a peace deal between long-time rivals Saudi Arabia and Iran, with high-level Saudi officials stating that the Kingdom will play its due role in the existing multipolar global framework with China a significant player in it. In this structure Pakistan too has carefully balanced relations between China and the West; however, this balance tends to be compromised by the country’s heavy dependence on external borrowings to meet its cyclical unsustainable current account deficits (that compel borrowing from the Fund), to strengthen foreign exchange reserves (which have remained under pressure unless strengthened by borrowing as in 2013-17) as well as for budget support.
To meet our debt obligations from multilaterals/bilaterals/commercial borrowing/debt equity through issuance of Eurobonds and sukuks, the country at present owes to: (i) China under the China Pakistan Economic Corridor umbrella with projects signed during PML-N’s tenure (2013-18) that increased the country’s debt to China significantly, a fact reportedly cited by multilaterals; and (ii) deposits from China, Saudi Arabia and the UAE in recent years have gained prominence in our debt profile – countries which have publicly stated that their support to debtor countries would be through multilaterals so that the reform agenda and its pace of implementation are strictly monitored to ensure that their money is appropriately used.
The finance minister claims that China recognises that geopolitics may be at work with respect to the stalled ninth IMF review and cited the recent rollover of a billion dollar commercial debt to stress that China will fund us out of the woods. While China does provide support to those middle income countries on the verge of default so as to better protect its own banks’ exposure (Pakistan has been unable to meet its contractual obligations to CPEC projects in recent months) or, in the best case scenario to Pakistan as we are a longtime ally, yet China has no history of debt write-offs; (iii) and debt owed to the West, Paris Club, and multilaterals headed by the West.
The delay in the pending ninth review and taking on an aggressive stance instead of trying to resolve the Fund’s concerns may well be the reason behind our downgrade by international rating agencies with a continuous downward slide in all key macroeconomic indicators. A similar sentiment is also echoed by a former governor of the State Bank, Reza Baqir, when he stated that “the country needs a constructive relationship with the financial institutions it seeks to rely on for support”.
Since November last year a successful culmination of the ninth review has eluded us thus far and although the Fund and our ministry of finance continue to stress that they remain engaged with each other, it is increasingly being felt that staff-level agreement would not be possible before 30th June and the programme will end. The following quote from one of Shakespeare’s plays ably sums up our present situation or predicament: “The fault, dear Brutus, is not in our stars/But in ourselves, that we are underlings.”
Copyright Business Recorder, 2023
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