IMF warning

The International Monetary Fund (IMF) in its report has issued an ominous warning that risks pertaining to Pakistan’s economic and financial outlook have increased and its mid term and long term debt repayment capacity has weakened urging Islamabad to take immediate corrective measures. IMF released this gloomy report just after the conclusion of its Board of Directors meeting that held the ‘first program monitoring discussion’ with Pakistan held in Islamabad. The report noted with concern the alarming current account deficit which is 4.8 percent of the GDP worth $ 16.6 billion and budget deficit which has reached to 70 percent of the GDP.

The IMF projections over the current account deficit and budget deficit are very gloomy. The international lending agency has also added to the warning of FATF corroborating the stance of this intergovernmental world body and has urged the government in Islamabad to improve its money laundering and counter terrorism financing regime. It has also asked the countries economic managers to devalue the currency although the recent depreciation of Rupee by 4.5 percent against the US dollar and loss of value in exchange with other major currencies has not reflected in enhancing exports and easing pressure on  foreign exchange reserves.  The foreign currency reserves have dropped to $ 12.1 billion despite the acquisition of $ 500 million Chinese loan and further quest for $ 1 billion. The imports are still surging and the pressure on the foreign currency reserves will intensify. The budget deficit has reached to 70 percent of the GDP but there are no signs that the government will abide by the Fiscal Responsibility and Debt Limitation Act, 2005. The World Bank pegged a loan of $ 400 million with the condition of enacting more comprehensive legislation, ensuring prudent fiscal and debt management. But the required legislation was not made by the present government which is fond of reckless borrowing irrespective of its consequences for the fragile economy.

The IMF has also emphasized prudent debt management and cautioned against phasing in new external liabilities. Seeking more Chinese loans indicate that government will tread the opposite path by ignoring the IMF sane advice. The multilateral donor agency has urged the government to tackle the rising fiscal risks stemming from the continuous losses in public sector enterprises. The cumulative losses of PIA are Rs. 320 billion and that of Pakistan Steel Mill have reached to Rs. 161 billion. These huge losses incurring government entities need privatization but the government has not succeeded to offload this heavy finical burden on the national exchequer. Another major contributor to the massive fiscal deficit is the piling up of circular debt which recurs because of the financial trap of Independent Power Plants laid against economy of a poor nation in the second tenure of Benazir Bhutto government. An amount of Rs. 480 billion was paid to the Independent Power Producers in 2013 and the circular debt liability has again reached Rs. 922 billion. However the government admits a liability of Rs. 525 billion and the Economic Coordination Committee has approved the payment of Rs. 80 billion.

The government will reject the recent IMF report like the findings of World Bank Report “South Asia Focus Fall 2017″released in August last year.The federal Minister for Interior, Planning and Economic Reforms, Ahsan Iqbal,State Minister for Finance Rana Muhammad Afzal and De facto Finance Minister Miftah Ismael will swing into action, repudiating the IMF report and making once again tall claims of economic gains and imminent prosperity. The incumbent government will leave the heavy baggage of economic and financial mess to the caretaker government. It will never accept the suggestions of international financial organizations to address the current fiscal imbalances.