By Elton Gomes
Pakistan Prime Minister Imran Khan on Wednesday promised to steer the country out of a looming financial crisis, days after his government formally announced that it will be seeking a fresh bailout package from the International Monetary Fund (IMF).
Although Pakistan needs a substantial amount of $10-12 billion, Khan said on television that this is “not a major issue”.
“We will get out of this. I will take (the country) out of this,” he said. Khan then spoke about the options in front of Pakistan: “We have two options: one, we can go to friendly countries and ask them to bridge this gap; and second, that we go to the IMF,” AFP reported. He added that his government has decided to do “both”.
After taking office in August, Khan’s government deliberated on whether to seek a bailout from the IMF. His government has sought loans from friendly countries and promised to recover funds stolen by corrupt officials.
Recent reports also recorded several austerity measures undertaken such as auctioning previous PM Nawaz Sharif’s buffaloes and luxury cars owned by the prime minister’s house. Khan also urged Pakistanis to engage in crowdfunding to build a dam in the country.
What is the problem?
Pakistan is on the verge of a balance-of-payments crisis, which has been threatening the stability of its currency and its ability to repay debts or pay for imports. Pakistan’s budget deficit has increased steadily over the past five years — from four per cent to 10% of the GDP.
In addition, import levels have reached extremely high levels, mainly due to rising oil prices. On the other hand, exports — majorly textiles — have witnessed only a slight increase.
As a result, Pakistan’s foreign currency reserves have declined to about $10.3 billion, according to recent figures released by the caretaker government. To add to Pakistan’s woes, the rupee has been devalued four times since December, thus fuelling inflation.
“We borrowed like crazy in the last four to five years, so it’s time to repay. But we don’t have… reserves,” former finance minister Hafeez Pasha told AFP.
What has Khan promised?
After coming to power with promises of an anti-corruption agenda and of building an Islamic welfare state, Khan urged Pakistanis to not get frustrated.
“This is a very small period (of crisis). Our country is a rich country, it is blessed by Allah. This country will come out of crisis,” he said, AFP reported. Khan announced that his government will soon initiate a massive low-cost housing scheme with the aim of building five million homes in five years.
Pakistan’s Finance Minister Asad Umar tweeted that all options are on the table. He told local media that the new government is considering privatising all state-owned companies, including the debt-laden Pakistan International Airlines.
However, there are fears that the conditions of a new bailout package could be stricter than the one secured in 2013. This is due to weakening relations between Islamabad and Washington, one of the Fund’s biggest donors.
Will Khan find it tough to secure bailout?
Writing for the Economic Times, Dipanjan Chaudhury claimed that Khan could find it difficult to secure a bailout after 16 US Senators urged the Trump administration to restrain the IMF from bailing out countries that have obtained loans from China.
The Senators wrote a letter to Secretary of State Michael Pompeo and Treasury Secretary Steven Mnuchin and said that Pakistan, Sri Lanka, and Djibouti were among the countries that have accepted billions of dollars in loans from China but were unable to repay.
Pompeo had already warned Islamabad that any IMF bailout should not include funds to pay off Chinese loans. Pakistani officials have denied such claims and said that such comments were driven by the current US-China tensions.
Will this affect India?
Similar to that of India, Pakistan’s economy has its own twin deficit problem—government spending outpacing revenues and imports outpacing exports. However, its economy has been known to be in much worse shape as compared to others in the region.
India would want to be wary about deepening ties between China and Pakistan. Pakistan’s economic troubles could indicate that India might have to live with increased Chinese influence in South Asia, in general.
It is still early to say whether a China-Pakistan alliance could result in less or more anti-India activities. However, India will look to mitigate risks from volatile situations in the neighbourhood, and to do so, it might just need a new strategy to engage with Pakistan’s external donors.
Elton Gomes is a staff writer at Qrius