Terming it a difficult decision, the government has decided to approach the International Monetary Fund (IMF) for stabilization and an economic recovery program to deal with the prevalent financial crisis.
Finance Minister Asad Umar said in a video that talks with IMF will start immediately as Prime Minister Imran Khan has given a go-ahead to approach the Fund.
PM Khan had convened a meeting to consider economic strategy options on Monday. Sources said that after getting input from economic experts, Khan decided to approach IMF for a bailout package.
The negotiations will be aimed at reaching a “stabilisation recovery programme” which can be used to tackle the economic crisis, the minister said.
With the IMF programme, the government will aim to have a “minimum impact” on low-income classes, while passing on the burden to wealthy citizens.
The country is going through a tough time, which has been left behind by the previous government, he said. “We have to find a way to get out of this difficult situation.”
The Finance Ministry stated that immediately upon assuming office, the present government had expressed serious concerns on the dire economic situation of the country and had committed to undertake a quick evaluation of all possible options.
The government inherited 6.6% of fiscal deficit, more than a trillion Rupees of unaccounted for losses in the energy sector and an unprecedented and debilitating current account deficit running at $2 billion a month.
To correct the underlying imbalances, fiscal and monetary actions needed to be undertaken without delay.
In this regard, the Finance supplementary (Amendment) Act, 2018 by the government and the policy rate increases by the State Bank of Pakistan are actions taken to stabilise the macroeconomic situation. In addition, regulatory duties on non-essential imports have had to be introduced to curb the unnecessary growth in imports.
After taking into account the current situation and consultation with the leading economists, the government has decided to approach the IMF for stabilisation and an economic recovery program.
There have been ten IMF programs since 1990s in one shape or the other. It is essential to remember that there is a history of Pakistan repeatedly going to the IMF with every new government being forced to go with IMF program due to legacy of those who held power in the previous government.
The challenge for the current government is to ensure that fundamental economic structural reforms are carried out to ensure that this spiral of being in an IMF program every few years is broken once and for all. In this regard the Finance Minister shall hold meetings with the top leadership of IMF during the annual meetings of World Bank / IMF at Bali later this week.
A Pakistani delegation led by the finance minister is scheduled to attend the annual meeting of IMF and World Bank in Bali, Indonesia this week, said sources adding that the meeting will take place from October 12 to 14.
On the sideline of the annual meeting Pakistan will place a formal request to the IMF, said Finance Ministry officials, adding that IMF team is likely to visit Pakistan within ten days with its conditions for the bailout package. The negations are expected to complete in 4-6 weeks, and agreeing with the Fund’s conditions, the country may go for a three years prorgrame and can ask for $6-7 billion.
A day earlier, reports surfaced stating that the government is in need of $9 billion to fulfill the country’s fiscal needs. It was also said that the government wanted to approach IMF for a bailout package but did not want to name it so.
In an interview in September, the finance minister said that they were not in a rush to approach the IMF for a bailout.
“Pakistan is not in an emergency situation that requires it to rush to the IMF to seek a bailout,” the finance minister had said during the interview.
The IMF last week completed article IV discussions with Pakistan and at the end issued a press statement saying that additional decisive policy action, anchored in a comprehensive strategy and significant external financing will be needed in the near term.
Policies should include more exchange rate flexibility and monetary policy tightening, further fiscal adjustment anchored in a medium-term consolidation strategy, and strengthening the performance of key public enterprises together with further increases in gas and power tariffs. Together, these steps would help reduce current account pressures and improve debt sustainability.
Importantly, to protect the more vulnerable segments of society, there is a need to further strengthen social protection through the Benazir Income Support Program. These policies will help stabilize the economy and lay the foundations for sustainable and inclusive growth.