The International Monetary Fund and government of Pakistan have agreed on terms for a $6billion bailout package, to be paid over a period of more than three years, bringing an end to several months of negotiations with the IMF. Currently Pakistan is facing a dreadful economic environment, with dull growth, high inflation, increase indebtedness, and a weak external position. Abdul Hafeez Shaikh, Prime Minister Imran Khan’s adviser on finance, stated that after high level discussion over several months Pakistan and the IMF have reached a staff-level accord. Shaikh said this agreement would open up at least $2billion in additional financing from the World Bank and the Asian Development Bank. Pakistan has availed 12 IMF stabilisation programmes and bailouts since 1988, totaling approximately $18.9 billion in funds drawn, according to IMF data. The country’s last bailout, taken in 2013, was worth approximately $6.6 billion with the programme finishing three years ago. The announcement would mitigate worries by bringing an end to vagueness around the IMF’s programme. An expert IMF economist Dr Baqir has been appointed to look to the macroeconomic issues of Pakistan.
Pakistan is tackling issues of current account and fiscal deficits, the two major challenges for the economy. This was asserted by Dr Baqir while speaking on Economic Outlook of Pakistan. The SBP governor stated that the current account deficit was coming down and this year it would be around $13 billion in contrast to $20 billion of the fiscal year therefore saving $7 billion. The SBP was battling inflation by increasing the interest rate. This will help to manage fiscal deficit as well as inflation. The governor was frank in saying that the exchange rate government was market-based but it was not free float. However, he stated that there would be no fixed rate like it was in the past. The SBP governor said in Egypt their currency was fixed at eight pounds per dollar, when the exchange rate was freed it touched the real value of 18. On the black market, the US dollar was available at 18 Egyptian pounds. Nevertheless in case of the Philippines the local currency rose stronger to 39 compared to 55 when the exchange rate was fixed. He said that a market-based exchange rate would enhance with higher inflows to balance the supply and demand. He said that agreement with the IMF had largely enhanced the assurance of international bodies and investors in Pakistan’s economy. Dr Baqir said the increased interest rate would reduce the fiscal deficit and the government’s determination not to borrow from SBP was a great step to minimize inflation. He said due to a large fiscal deficit and debt accumulation, poverty stricken section of the population was ignored. The SBP in the past been not been able exercise its primary functions like developing and carrying monetary and credit policy and maintenance of the external value of the currency. Hence, economic stabilization at present is the aim of the SBP under its new governor. The government shall not borrow from the SBP; it will not lend to the government so as to force it to explore other ways to raise money for example like reducing down its own expenditures and prevent adding to the rate of inflation. The market-based exchange rate regime, find ways to keep the government on its guard as regards knocking the true foreign currency sources rather than indulging in the luxury of fixed rupee- dollar parity.
The Governor of the State Bank of Pakistan, Reza Baqir, assured markets about the direction of the economy. He affirmed that the exchange rate would remain ‘market-determined’ and that the IMF programme was on the way being endorsed by the board on July 3. He now may have taken all these constructive measures or not at the insistence of IMF. The State Bank had claimed that it had met all the prerequisites for the IMF programme. In this regard striking balancing act for new governor, can have influence for the markets, while long keeping quiet and carrying on business from behind the scene can stir up guess. In this regard his strong communication design can play significant role for prosperity and happiness of Pakistan.
Governor State Bank of Pakistan Dr Reza Baqir, in a record- breaking press conference where he took questions from journalists from all major cities, expressed his absolute support for the International Monetary Fund’s prior conditions reflected in its 12 May 2019 press release. Not borrowing from the SBP is also a normal IMF condition and was in effect during the previous two loans for example in 2008 and again in 2013. It is surprising that the growth rate of Pakistan’s economy dipped to around 3.3 percent which many well experienced economists here say is an overestimation. And in another year the growth forecast in budget is even lower at 2.4 percent only. There are no arguments and the government is honestly committed to the IMF programme with its affiliated conditions.