The Pakistan government to be formed after July 25 elections will inherit a record high-trade deficit of $37.7 billion, a plunging stock market that hit this year’s lowest at 39,288 points on Monday and a currency that has been devalued by over 15% in the past seven months.
The outgoing Pakistan Muslim League-Nawaz (PML-N) government has been criticized for its economic policies, which have left the country with a balance of payments crisis, and a record debt, with the rupee being devalued three times since December 2017.
A recent International Monetary Fund (IMF) report on Pakistan says “risks to Pakistan’s medium-term capacity to repay have increased significantly… due to mounting external and fiscal financing needs and declining reserves.”
The report says, Pakistan’s external financing needs are expected to rise from $21.5 billion (7.1% of GDP) in 2017 to $45 billion by 2023 (9% of GDP). The figures suggest that the next government will have few options but to seek another IMF loan to reduce the current account deficit.
Finance Ministry sources told Asia Times that a recent $1 billion loan from China was agreed to in May this year. It will provide a much needed respite to the foreign currency reserves. Pakistan has received an additional $3 billion worth of loans from Chinese commercial banks in recent months in connection with the China Pakistan Economic Corridor (CPEC).
Finance Ministry officials, however, say Chinese loans are a short-term fix and Islamabad will need a longer-term solution. “Pakistan has borrowed up to $7 billion from China over the past two years, but an IMF bailout has become a necessity. And it is the new government that will carry it out,” said Waqar Masood Khan, a former federal secretary at the Ministry of Finance.
“It was almost as if the previous government had sworn not to go to the IMF, even though they could’ve done so in January to stabilize the economy. They practiced a lot of fiscal indiscipline and are leaving behind a record deficit of 70.1% [of the GDP],” he said, adding that fixing the broken macroeconomic framework would be the biggest challenge for the next government.
While the PML-N government continued to deny it was looking for an IMF bailout during the last few months of its tenure, the then finance minister, Miftah Ismail, had talks with World Bank and IMF officials during his trip to Washington in April this year.
Diplomatic sources confirm that a major purpose of the US visit was to discuss terms of a bailout package for after the elections, which the PML-N expects to win.
A Foreign Ministry official confirmed that Islamabad has been in talks with Washington over the need for financing, maintaining that economic deterioration in the country could allow militant elements to exploit the situation.
Miftah Ismail told Asia Times that he did not meet the US over a potential bailout loan, maintaining that help from the IMF wasn’t needed right now.
“It’s for the next government to decide, but it is too soon [to ask for an IMF bailout],” he said. Even so, the former finance minister conceded that some policies during the previous five years were flawed.
“Exports [have gone] down for three years in a row, suggesting that we should have devalued the rupee [earlier]. By keeping the rupee at a nominally high rate we hurt our exports, increased our imports and we drained our reserves. We also had to borrow money resulting in the State Bank having to intervene,” he said.
However, Ismail believes that with the latest devaluation, the rupee has regained competitiveness and should help export growth. “Also, I think we’ve now reached the accurate rupee value now,” he says. Ismail also says the current debt numbers are being viewed out of context.
“When our tenure started the debt was around 64% [of the GDP], now it is around 70.7 %. When we started the foreign debt to GDP was 21.4%, now it’s 23.5% – so it’s not that much [of an increase]. We shouldn’t look at absolutely numbers, and instead should focus on the relative numbers,” he said.
“Just for context, Japan’s debt to GDP is 228%, Italy has 123%, Singapore 111%, Sri Lanka 78% and India 68%. The debt has definitely gone up in 2018 as compared to 2013, but it’s not out of the norm in terms of how things are among international countries. “And let’s not forget we’ve spent the money on building a network of motorways, highways and power plants, so obviously that has to be done by debt – that’s all.”
The outgoing finance minister added that curtailing the budget deficit would be the biggest challenge for the next government. “In terms of the current account deficit the things that we’ve done are actually enough.”
The Pakistan economic collapse is looming. Some of is to be blamed on widespread corruption and mismanagement of the country. One example is the Norwegian Telenor who operates a phone company in Pakistan 40% of the revenues is profit straight into the pockets of the stone rich Norwegians. Great that foreign investor make money, but telecom is vital communication infrastructure and a national security issue Telenor is an alleged CIA front and has been kicked out of Russia and India.
The Afghan war has hurt the Pakistan economy immensely. Politician Imran Kahn estimates $100 BILLION in lost revenues since the war started. The Afghan war has increased terrorism in Pakistan. Pakistan has the key to close the Afghan war. Refuse the US to run their supply lines through Pakistan to the US troops in Afghanistan. An end to the Afghan war will bring stability to the region and reduce terrorism in Afghanistan. The US is trying to destabilize Pakistan through economic warfare and bullying.
Let us hope the election gives Pakistan a new Government that can take on the challenges ahead!
Looking more and more like it’ll be a hung parliament. They’ll be exceptionally lucky to get another IMF program. Times have changed. Expect PKR to plunge, if next gov’t is a messy coalition or hits a brick wall in DC. Waiting for 60 cents on the Dollar on the 2019 bonds.
Pakistan needs a strong leader like Ayub Khan who can take buĺ by the horn and solve problems.
Perry Kamath
Yes, and Ayub Khan took his country to war with Indian in 1965 and lost, and the economy tanked! Some problem-solver!
Only God can save Pakistan. This country has Terminal Cancer which has matistized & reached all the vital organs.
This country was created for the rights of Muslims, not for Mullahcracy & privillaged establishment.
Only Solution is truly democratic & Secular Pakistan. Otherwise no hope is left.
By the way Indians should not start celebrating as they will be heading that way soon. It is the Hindu narrow mindedness that resulted in the creation of Pakistan. The same narrow mindedness has brought BJP to power. Indians should learn a lesson from Pakistan.
Wait and see how India will grow under BJP. But you are right, Pakistan need drastic treatment, as the cancer spread all over.
Every Pak seems to end their sentence… but India…
I agree! India should stop being arrogant and see it is better with a democratic Pakistan and/or the Pakistan military taking care of Pakistan. If the extremist gain more power it could become a disaster for India. India, be careful what you wish for, you might get it!
I have seen how Pakistan helped Sri Lanka in their war against LTTE terrorism. When India was hiding under the bed, Pakistan helped their neighbour. I tip my hat for Pakistan!
Mr Ahmad,
WRONG! It was NOT HINDUS who created Pakistan…and the CONGRESS was a secular party with a wide of range of members, where religion was irrelevant. The ideas was unity in diversity and a composite culture that will rule India.
No, Pakistan was created by the intransigence of the Muslim League led by the ace hypocrite and phony, Jinnah, a Shia! Jinnah, the pork-eating, alcohol-swilling pious "Muslim" insisted on an all-Muslim state based on religion that he did not practise!
Pakistan was to be the "PURE" land for sub-continental Muslims but in reality was for the Muslim feudal elite, comprising of Muslims from UP, Bihar and Bengal…and not for the masses! With the help of Britain, Pakistan was formed in 1947, a garrison state that inherited 40% of the military assets from British India. That meant, you had to pay for the military (salaries, money for tanks and planes, etc). How to pay for all these? Answer: aid from the West, while the rulers of Pakistan used the ruse of the country being a "pivot of Asia".
Pakistan has since lost its Eastern wing following the India-Pakistanwar in 1971, which showed that religion cannot be the basis for statehood.
India, in contrast, is now the fastest growing economy in the world, and the 5th largest ($3 trillion economy), one of 6 space powers in the world, with a thriving high-tech industry (its gets 75% of all the IT contracts from the world’s largest IT market, the USA), is building Thorium-based nuclear reactors that produces more energy than it inputs, build sits super-computers that is used in nulear weapons simulation and weather forecasting, has built a resuable space shuttle which it tested recently, etc….I could go on!
It is Pakistan, a failing state, wracked by Jihadi terrorism that its own state sponsors and a civil war in Baluchistan, which will break up the country in the future.
Pakistan is DOOMED!