The final IMF review - I

The mission leader of the 6.64 billion dollar Extended Fund Facility (EFF) Harald Finger while briefing the media via a video link after uploading the twelfth and final review on the International Monetary Fund's (IMF) website acknowledged that exports are likely to decline because of poor business environment, an overvalued rupee by 5 to 20 percent and energy problems. Pakistan's current account deficit would widen, he further stated, due to a rise in oil prices and higher imports on account of the China Pakistan Economic Corridor. Such a succinct analysis presents a picture is not different from the one highlighted by this newspaper frequently during the first eleven reviews under the EFF, the objective being to bring it to the notice of the policymakers that the road to reform undertaken by the government under the EFF may lead to some favourable macroeconomic indicators but they would not be sustainable.
Take the case of the international reserves that has been the cause of considerable self praise by the senior officials of the Finance Ministry including Finance Minister Ishaq Dar. The Fund in its twelfth review notes that public debt remains high increasing by 2.5 percent of Gross Domestic Product (GDP) and is at present a whopping 430 percent of government revenue which is well above the emerging markets average. And while the increase in reserves is debt enhancing yet this is still not at a comfortable level because the review notes that the reserves are adequate for 4.2 months of imports only (76 percent of the Assessment of Reserve Adequacy).
And what of exports a major source of desirable reserves? In countries like Pakistan where remittances are a major source of foreign exchange earnings the impact of negative export growth can be minimised. According to the twelfth review, exports (year on year growth) declined from plus 0.4 percent in 2012-13 to a negative 8.6 percent. The reason as per the review: "pronounced real appreciation of the rupee over the program period despite the State Bank of Pakistan's significant purchases in foreign exchange market to rebuild external buffers, has negatively affected trade competitiveness."