Sources close to the incoming government are reported to have given the impression that the new government does not need to seek an immediate IMF programme. The argument is that the current level of foreign exchange reserves is hardly sufficient for two to three months' imports and the designated Finance Minister could complete the auction for 3G licences in two months for an estimated dollar 800 million, besides successfully persuading Etisalat to release dollar 800 million overdue payment for the privatisation of PTCL. The PML-N is also pinning its hopes on the promised release of CSF dollars 1.8 billion by the US.
Besides, the real problem would begin in the second quarter of next fiscal year when the country would be required to repay a huge amount of dollar 1.685 billion SDR to the IMF. The PML-N leadership also feels that its plan to stimulate growth - the main plank of its economic revival strategy as outlined in its election manifesto - would be compromised by the stringent and painful economic stabilisation conditions attached with an IMF loan. As is well known, growth usually slows down under an IMF programme owing to its emphasis on stabilisation policies.
Sartaj Aziz, who is expected to be the chief economic and foreign policy advisor in the new government, was more forthcoming. He also opposed the idea of an early programme with the Fund. His argument was that the kind of conditions IMF would now propose would not allow the country to grow. However, if the economic revival package of the new government begins working in a few months' time and exports, revenues, etc, start picking up; then much less adjustment would be required compared with the present situation.
While this line of argument may not be considered entirely baseless, Pakistan is currently facing staggering economic challenges which are not possible to be resolved in a very short period of time as expected by the incoming government. For instance, the provision of adequate energy cannot be ensured in matter of months, without which the growth rate and exports cannot be improved to the desired levels. Also, the savings and investment, which are a prerequisite for growth, take a long time to recover or grow. Moreover, it can be easily argued that sustainable growth is only possible in an environment of stability and as such, economic stabilisation must take precedence over growth. It is true that an emphatic victory in the May 11 polls affords the PML-N enough space to work out its economic revival strategy, take bold policy decisions and implement structural reforms to fix the faltering economy but the balance of payments (BoP) crisis is so severe and the need to resolve it is so immediate that the country cannot afford to lose more time. Pakistan's liquid foreign exchange reserves have slumped to 6.5 billion dollars or about two months' imports and it is not easy to convince entities like Etisalat or the US to dish out money at short notice. All of this suggests that it is better to seriously approach the IMF for an arrangement before the BoP woes eventually turn into a crisis, taking the country to the precipice of a possible default. This is necessary because it takes months to ensure consensus on the reform agenda that is necessary for an arrangement. Also, the reforms proposed by both the sides may not be very dissimilar as there is general agreement on the real deficiencies of the economy. Besides, it needs to be mentioned that capital and financial inflows could increase and the credibility of the country restored if the negotiations with the IMF are initiated as early as possible after the assumption of power by the new government. There seems to be no point in delaying the inevitable if it is in the country's interest.
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