Posting the article in full as this is a subscriber account. Also, read the comments.
https://www.ft.com/content/4421a5a8-917 ... 80cedcc421
Pakistan is drawing up plans to seek its largest ever bailout from the IMF, with senior finance officials set to present the option to Imran Khan soon after he takes office.
Any loan from the IMF, which officials believe is necessary to resolve the country’s escalating foreign reserves crisis, would see the fund impose restrictions on public spending. Such limits would make it difficult for Pakistan’s charismatic new leader to fulfil some of his election promises such as building an “Islamic welfare state”.
Mr Khan, Pakistan’s former cricket captain, spent the weekend negotiating with potential coalition allies after winning 115 seats — 22 seats short of a majority — and overturning decades of dominance by the country’s two main ruling families.
One government adviser said: “We are in a rough area and need help. I can’t imagine we could do that without the IMF’s support.”
The person said the country was likely to need a loan of between $10bn and $12bn — double the $5.3bn the fund lent the country last time in 2013 — in what would be Pakistan’s 13th IMF bailout.
During the election campaign, Mr Khan pledged to spend public money on providing access to healthcare for all, upgrading schools and expanding the social safety net.
But analysts warned these promises would be hard to fulfil given the reality of Pakistan’s economic situation.
Pakistan’s foreign currency reserves have declined rapidly in recent months, as higher oil prices have pushed up the costs of imports, while exports continue to lag.
According to the latest published figures on July 20, the State Bank of Pakistan had just $9bn in reserves — not even enough to cover two months’ worth of imports.
So far, Islamabad has kept going with the help of loans from Beijing — it borrowed at least $5bn from Chinese commercial banks in the past financial year — and by allowing the Pakistani rupee to depreciate 20 per cent against the dollar. Western economists say they believe the currency is still overvalued and think it could fall at least another 10 per cent.
Mr Khan has not yet said how exactly he plans to deal with the balance of payments crisis he now faces, though he told the Financial Times shortly before the election that his shadow finance minister Asad Umar was developing a policy.
Many analysts, however, believe a return to the IMF is inevitable, and will come with damaging consequences for short-term economic growth and Mr Khan’s own political reputation.
They say the fund is likely to demand a range of actions in return for providing a bailout, including raising electricity tariffs, cutting subsidies for the agriculture sector and selling lossmaking public companies. This year the IMF projects that Pakistan’s fiscal deficit could hit 7 per cent, against a target of 4.1 per cent, meaning the fund is likely to demand deep cuts in planned public spending.
Charlie Robertson, global chief economist at Renaissance Capital, said this could lead to a 1 percentage point slowdown in gross domestic product.
“This is the first time Imran Khan gets his hands on power and he is going to have to make some very tough decisions. He will have to break election promises, at least in the short term,” Mr Robertson said.
One other option remains open to Mr Khan: he could seek to negotiate a deal with Saudi Arabia to defer oil payments, something the Gulf country agreed to in 1998.
Sakib Sherani, a former adviser to the finance ministry, estimated that energy-related imports could account for a third of the country’s total imports this year. “An economic slowdown may also curtail energy imports but still this would be huge,” he said.
Additional reporting by Shawn Donnan and Katrina Manson in Washington
Copyright The Financial Times Limited 2018. All rights reserved.
Suggested IMF bail out conditionalities:
1) Stop supporting terrorism in Pakistan, and exporting it overseas. Disband terror groups and arrest all militants.
2) Disarm your nukes. Handover to the IEA and OPCW. To be overseen by the OSCE.
3) Put the military in the barracks, and ensure that parliament has control over the military and ISI ie parliament approves budgets, appoints/promotes generals and the director of the ISI
4) Break up state monopolies run by the military and introduce pro market reforms
5) Slash your defense spending by 80%, and enter into peace talks with India to ensure that each side respects each other's sovereignty (note point number 1 above)
6) Release all political prisoners including Nawaz Sharif and Balouch independence activists
7) Enter into peace negotiations with Balouch independence activists, and give them full autonomy (Pakistan army to be responsible for integrity of external borders, but under command of Balouch independence activists)
Undo Islamisation and Saudisation e.g. close all madrasas, ban the teaching of the quran and other religious texts that spread bigotry.
9) Focus teaching on science and technology, not the hallucinations of a 6th century Arab warlord. Instead promote heroes such as Mandela, Martin Luther King, Gandhi and Dalai Lama who people should emulate.
10) Separate Islam from the state. Religion is a private affair and not a way of life. Ban blasphemy laws that target Christians, Sikhs and Hindus. Jinnah had wanted a secular state where Muslims would be the majority but all minority rights would be respected.
11) Take concrete steps towards inter community harmony where Islamic factions stop blowing up rival civilians and I could go on......Pakistan is in such a mess......
kdr 7 minutes ago
Luckily, Bangladesh got out of Pakistan's clutches in 1971 and is doing pretty well economically. No panhandling here. The Pakistani Army's pogrom finished off 3 million muslims in Bangladesh. It was a heavy price to pay but they are reaping the rewards. We keep forgetting the large scale slaughter of fellow muslims by the Pakistani Army.https://en.wikipedia.org/wiki/1971_Bangladesh_genocide
kdr 19 minutes ago
One year's defense budget should solve the problem.
BlueCrow 1 hour ago
I wonder how much it costs them to maintain their nuclear deterrent...
78654 39 minutes ago
@BlueCrow not much at all sadly. Its relatively easy now that the hard work is done. They spend more on the army in general though.
Blah Blah 13 minutes ago
@BlueCrow or their terrorist infrastructure
SPA 2 hours ago
Whats the big deal per person this is a fraction of what the European countries and US owes.
kdr 22 minutes ago
@SPARight. But they issue debt which others buy. This is Pakistan's external debt in hard currency.
Blah Blah 10 minutes ago
@SPA but no one wants to lend them any money. people trust US and the EU, they are still reliable despite issues. Pakistan is a different case altogether. Even a Dolphin would have figured out what a scam CPEC is - classic "loan to own" but Pakistanis love nothing better than having a patron saint er...patron state. Pakistan would rather train its citizens to be terrorists than on anything useful such as science and tech.
Kaleem Mirza 3 hours ago
I doubt the US will bail out Pakistan through the IMF.
kdr 21 minutes ago
@Kaleem Mirza Tell that to Donald J Trump. It is only Xi who will be willing to waste Chinese people's hard earned money on this cock and bull venture.
Kaleem Mirza 3 hours ago
Pakistan needs comprehensive debt restructuring and reprofiling, arguably to go cap in hand to the IMF for the 13th time suggests deep-seated structural malaise in the economy. Its time the citizenry of Pakistan wake up and realise the gravity of the underlying economic train wreck that is the Pakitan economy. Weak governance, vested interests, rampant corruption and societal degradation is the legacy of 70 years democratic and, military rule. It's time for a change! Borrowing from abroad: remittances, WorldBank/IMF, KSA, UAE, China and expatriates have been the failed strategy of the last 70 years. Pakistan is a bankrupt nuclear power.
78654 38 minutes ago
@Kaleem Mirza Also the official economic figures hide a massive black economy that accounts for a significant chunk of the real economy, if Pakistan government can bring this into the light and collect tax revenues, it won't need a bailout. But, that relies on getting the entrenched parasite class to start paying taxes.
NJ Red Bank 4 hours ago
Country is roughly 70 years old. On its 13th IMF bailout, that is a bailout about every 5.3 years. Why does the IMF exist? Pakistan is a model of moral hazard.
Hamlet 5 hours ago
« Many analysts believe that a return to the IMF is inevitable ». Return? Pakistan has been borrowing from the IMF for decades, never really paying back in full, always securing a new program to allow both Pakistan and its creditors to pretend that the country is honoring its commitments. Meanwhile, the reforms and spending controls supposed to be the conditions for the loans, are never really implemented.
And now again, when big repayments to the IMF are due the next few years, Pakistan wants to borrow yet again. And chances are good that Pakistan will get the new loans, for political reasons, because the US wants to keep Pakistan friendly in the fight aganst islamic extremists.
The IMF and the international community has long been taken for a ride. It is time to say no.
askeptic 5 hours ago
And you never know, the IMF might spot your wise words, and offer you the job. I mean replace Mme Christian Legarde! Its not every day that a smart mind gets spotted.
Hamlet 1 hour ago
Thanks but no thanks...too busy enjoying retirement.
Yes the IMF needs someone who is reasonably smart. As well as able to convince its biggest shareholders. Most of the time the Fund’s Management and Staff do a good job under difficult conditions, and they know what needs to be done even in the most desperate cases despite their many critics. However, Pakistan clearly ranks as one of the IMF’s really big embarrassments after so many lending arrangements.
78654 35 minutes ago
@Hamlet also don't forget a large chunk of any loans from the IMF gets eaten up by the endemic corruption across every strata of society in Pakistan.
Itsacrazyworld 6 hours ago
The military theme here is not the most relevant one It is the spend vs income equation.
While the spend side of the Pakistan equation is bad (mismanagement, corruption etc), the real problem is the income side. Less than 1% of the population pay tax, the super rich often evade tax altogether, feudals and industrialists refuse to pay utility bills .... the list is endless.
Imran needs to enforce tax collection and the rule of law. This will help on both the spend and income part of the equation
askeptic 6 hours ago
With respect, you are deviating from editorial guidelines now ...
The thesis to be established any which way is that Pakistan military is a really terrible thing, and all of us must do our best to do just that. "Relevance" etc are not a bar.
1 Observer 3 hours ago
@askeptic @Itsacrazyworld I guess the point is that, in any case, the military was not a better economic manager (except perhaps under Ayub). e.g. they did not tackle the long term issues such as infrastructure. At the same time they stunted the development of democratic institutions.