The deal with Saudi Arabia, which puts $3 billion in the state bank’s vaults and gives us a $1.2 billion deferred oil payment facility, has come just in the nick of time for Pakistan. Already the equity and money markets are factoring in a resumption of the IMF program, which will take pressure off reserves and should also ultimately do the current account deficit a world of good; without the government having to bend any further to accommodate the Fund’s demands. That means the immediate danger, at least, is over. And while the formalities are worked out, and final negotiations held with the Fund, the government should work out how to funnel the extra money into this fiscal’s expansionary budget, which has also dodged a bullet.
IMF should now understand Pakistan’s position a little better and back off somewhat from the demand to raise tariffs yet again. Both consumers and producers have been caught wrong-footed by the breakdown of the latest round of talks, since the subsides and concessionary loans they were counting on did not sit well with the international lender whose Extended Fund Facility (EFF) is crucial for Pakistan. So it is very welcome news that the uncertainty has passed, which markets hate more than anything.
Pakistan has suffered immensely during the last quarter or so. The impasse with the Fund not only put the government’s economic plans on hold, it also spooked foreign investment just when Pakistan needed non-debt creating forex inflows more than at any time in recent memory. Yet, welcome as the latest news is, we must be careful not to make a habit of asking friendly countries to bail us out of tight situations. Even those with short memories will remember that a similar exercise with Saudi Arabia did not turn out so well just two years ago. Therefore, this special window should be leveraged to enhance production and exports so we can become self sufficient in the minimum possible time.
Source: Published in Daily Times