Christine Lagarde, Managing Director of the International Monetary Fund, during the recently held World Bank/IMF annual meeting in Indonesia stated that the Fund would need to know the extent and composition of a country's debt, including sovereign debt and state-owned enterprise debt, "so that we can actually really appreciate and determine the debt sustainability... if and when we consider a programme." The reference was to Pakistan as it was subsequent to Federal Finance Minister Asad Umar formally requesting an IMF bailout package during the annual meeting.
Lagarde's statement is reminiscent of the warning by the US Secretary of State Mike Pompeo delivered on 30 July in a television interview, five days after Pakistan Tehreek-e-Insaf (PTI) emerged as the party likely to form the next government, that any potential IMF bailout package to Pakistan should not provide funds to pay off Chinese lenders with an unambiguous reference to terms of engagement under the China Pakistan Economic Corridor (CPEC). Pompeo stated: "Make no mistake. We will be watching what the IMF does. There's no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself."
The growing number of critics of the PTI's economic policies to-date - including those who had urged the Khan administration to hit the ground running (clearly defined as firming up an IMF bailout package and from other sources, including multilaterals and bilaterals as soon as possible) given the appalling state of the economy the party inherited - are pointing to the irony that the Americans were aware of the lack of funding options well before the PTI's economic team was. Be that as it may, Lagarde confirmed on 10 October that Pakistan had formally requested financial assistance during her meeting with finance minister and State Bank of Pakistan Governor and added that "an IMF team will visit Islamabad in the coming weeks to initiate discussions for a possible IMF-supported economic programme. We look forward to our continuing partnership."
The demand by the IMF is neither inappropriate nor indeed unexpected. This newspaper had been urging the previous (PML-N) administration to make all deals under CPEC transparent especially in light of the country's rising import bill specifically attributed to CPEC projects that was generating an ever-increasing trade deficit and consequently current account deficit. The argument presented by Ahsan Iqbal, the then Minister for Planning, Development and Reforms that once the CPEC projects are completed Pakistan would join the ranks of the emerging economies was arguably not economically sound given the speed at which imports rose and, not related to CPEC itself but to the flawed policy to keep the rupee artificially strong, exports plummeted. Today, the current account deficit is in excess of 18 billion dollars.
The PML-N government, once the IMF programme ended (September 2013-2016), began to procure loans from China, with other sources reluctant to lend to Pakistan as their comfort level with respect to the country staying the reform course eroded. The PML-N administration procured over 13 billion dollars in short-term loans from China, at high rates of return and very short amortization period that accounted for a massive rise in our annual debt repayments. In addition, trade figures between the two countries were massively in China's favour with our exports to China around 1.5 billion dollars while our imports from China rose to 15 billion dollars. In other words, there is a need to revisit both the terms of engagement under CPEC arrangements and the trade deficit with China.
The PTI was extremely critical of the PML-N when it was in opposition for lack of transparency in all deals with foreign governments - be they with China or be they with Qatar. While neither China nor Qatar is known to support providing details of their agreements with other countries yet there is no alternative to transparency in a democracy and one would hope that the PTI government would proceed to make good on not only its manifesto promises but also those made during its days in opposition.