‘Path of thorns’: An IMF bailout set to impede Pakistan PM’s populist agenda

Creating 10 million jobs would require the economy to grow at 8 percent but that can only be achieved with economic shock therapy that in the short term will smother growth to far below the 5.8 percent achieved in the year to June, economists say. (REUTERS/File)
Updated 15 October 2018
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‘Path of thorns’: An IMF bailout set to impede Pakistan PM’s populist agenda

  • IMF expected to push Pakistan to make some hard choices
  • Measures likely to crimp new PM Khan’s social spending plans

ISLAMABAD: From cutting power subsidies to forcing currency devaluations that stoke inflation, the hard choices facing Pakistan as it seeks a bailout from the International Monetary Fund (IMF) pose a major headache for populist new Prime Minister Imran Khan.
Pakistani officials met IMF representatives this week in Bali and formally requested Islamabad’s 13th bailout since the late 1980s to give the economy breathing room, while they implement reforms aiming to end decades of boom and bust cycles.
On top of lending the nuclear armed state billions of dollars to avert another balance of payments crisis, the IMF is this time expected to push Islamabad much harder to enact structural reforms needed to rebalance the economy, and rein in spending that has boosted growth but blown out the government budget.
Talks with the IMF have been launched and managing director Christine Lagarde has already said she would require “absolute transparency” of Pakistan’s debts, including those owed to close ally China.
Any reforms prescribed by the IMF would threaten Khan’s lofty campaign promises, like his vow to create 10 million jobs and establish an “Islamic welfare state” modelled on the ideas first voiced by the Prophet Muhammad in the holy city of Medina.
Khan was elected in July with the support of many poorer Pakistanis desperate for a change in a nation where the illiteracy rate hovers above 40 percent, health care is shoddy, and joblessness or underemployment rife among the country’s 208 million people.
Creating 10 million jobs would require the economy to grow at 8 percent but that can only be achieved with economic shock therapy that in the short term will smother growth to far below the 5.8 percent achieved in the year to June, economists say.
“The path to Medina is full of thorns, not roses,” said one expert at an international donor agency, who declined to be identified as he is not authorized to speak on the issue.
“To get there, they have to go through these painful measures now.”
The IMF predicted this week Pakistan’s growth will slow to 4 percent in 2019 and fall to about 3 percent in the medium term.
A sharp increase in oil prices — Pakistan imports about 80 percent of oil needs — has contributed to a current account deficit that widened 43 percent to $18 billion in the fiscal year that ended June 30. The weakening Pakistan rupee also contributes to a rise in local energy prices.
On Wednesday, Khan blamed the previous government for the economic mess and urged Pakistanis to remain calm.
“I want to tell all of you to stay strong and not to panic. This is a very short period of time which will go away.”
“FEND FOR OURSELVES“
As an opposition leader, Khan vowed to never “beg” for money from the IMF and swept to power on an anti-corruption platform that was coupled with a promise to enact badly needed reforms, including widening the nation’s taxation net and reforming loss-making state-run enterprises.
But local and foreign investors have welcomed the bailout talks, saying Pakistan’s economy needs the IMF’s protective blanket because of rising oil prices and emerging markets turmoil. However, they also warned of tougher conditions compared to 2013, when Islamabad was given repeated wavers and avoided harsh reforms after receiving a $6.7 billion IMF loan.
“Better that we enter into a well-structured IMF program than try to fend for ourselves,” the Pakistan Business Council said in a statement.
In a nod to the IMF, which called the rupee “over-valued,” Pakistan’s central bank on Tuesday carried out its fifth devaluation since December, sending the rupee tumbling 7.5 percent to take its losses to 26 percent in the past 10 months. More devaluations are expected.
The bank has also hiked its main interest rate by 275 basis points since January, to 8.5 percent, and analysts say more rises are on the horizon.
The devaluations have stoked inflation worries and are putting extra pressure on debt servicing, which is a major concern for the new government. Debt service costs are set to account for 35 percent of the budget in the fiscal year to next June, according to forecasts from the previous government. Officials now expect the debt to GDP ratio to rise above 70 percent.
“We really have to get out of this debt dependency trap,” Muhammad Hammad Azhar, Pakistan’s state minister for revenue, told Reuters.
He said the government was considering the possible restructuring of some foreign loans but did not give details.
Khan’s government blames many of Pakistan’s current economic woes on the previous administration’s “strong rupee” policy, which rendered Pakistan’s exports uncompetitive. The central bank also burnt through currency reserves defending the rupee.
Reserves have plummeted 41 percent this year to stand at $8.3 billion, or about 1.6 months of import cover, despite China lending billions of dollars to Islamabad to prop up the currency.
CHINA LOANS
China has made Pakistan a flagship country in its vast Belt and Road infrastructure building program, pledging about $60 billion in financing for ports, railways and roads. But rising debt levels have caused Islamabad to cut the size of the biggest Belt and Road project by about $2 billion.
US Secretary of State Mike Pompeo has said there would be “no rationale” for an IMF bailout of Pakistan that pays off Chinese loans.
Khan’s administration had also approached China and Saudi Arabia, Islamabad’s other historical ally, for help to prop up the economy but they appear to have balked at coming to Pakistan’s rescue on their own.
Though the size of any bailout is not clear, Khan this week suggested Pakistan needs $10-12 billion. On top of the IMF, the World Bank and the Asian Development Bank are expected to lend money, as they did in 2013. China and Saudi Arabia may also contribute.
The IMF last week commended Pakistan for curbing gas and electricity subsidies, raising interest rates and devaluing the currency. But it warned that Islamabad needs to go even further in all those areas.
Pakistani officials say they are braced for tough measures but hope to expand the tax base and raise more revenue rather than rely purely on austerity to patch up a budget deficit which hit 6.6 percent of GDP in the fiscal year to end June. They also want to help further stimulate exports.
Azhar said Khan’s party was elected on a reforms agenda and would push through changes “irrespective of any IMF bailout.”
On Wednesday, Khan launched a program aiming to construct five million homes for the poor, a top campaign promise. But he didn’t explain how the government will pay for it. (Reporting by Drazen Jorgic Editing by Martin Howell and Raju Gopalakrishnan)


Pakistan parliament approves bills to extend tenure of services chiefs to five years

Updated 04 November 2024
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Pakistan parliament approves bills to extend tenure of services chiefs to five years

  • Extension in services of army, navy and air force chiefs follows controversial amendments to the constitution last month
  • The opposition PTI party condemns the amendments for changing Pakistan “from a democracy into a monarchy”

ISLAMABAD: Pakistan’s National Assembly and Senate on Monday approved bills to extend the tenure of the army, navy, and air force chiefs from three to five years, amid protests by the opposition benches. 

The office of the army chief is considered to be the most powerful in the country, with the army having ruled Pakistan for almost half of its 75-year history. Even when not directly in power, the army is considered to be the invisible guiding hand in politics and holds considerable sway in internal security, foreign policy, and economic affairs, among other domains. 

Six bills were passed by the upper and lower houses on Monday evening, including one to increase the term of the services chiefs.

“In the said Act, in section 8A, in sub-section (1), for the expression “three (03)” the word “five (05)” shall be substituted,” read the bill, seeking to amend the Pakistan Army Act, 1952.

Similar bills were passed to increase the duration of the country’s naval and air force chiefs to five years also. 

“The purpose of these amendments are to make consistent the Pakistan Army Act, 1952 (XXXIX of 1952) The Pakistan Navy Ordinance, 1961 (Ordinance No. XXXV of 1961) and The Pakistan Air Force Act, 1953 (VI of 1953) with the maximum tenure of the Chief of the Army Staff, the Chief of the Naval Staff and the Chief of the Air Staff and to make consequential amendments for uniformity in the aforementioned laws.” 

Speaking outside parliament, the chairman of the opposition PTI party, Gohar Ali Khan, said:

“Today, democracy has been changed into a monarchy.”

Leader of the Opposition in the National Assembly, Omar Ayub Khan, said “modifying the service chiefs’ tenure is not a good thing for the country and the armed forces.”

The passage of the new bills follows controversial amendments made to the constitution last month, granting lawmakers the authority to nominate the chief justice of Pakistan, who previously used to be automatically appointed according to the principle of seniority.

The amendments allowed the government to bypass the senior-most judge of the Supreme Court, Justice Mansoor Ali Shah, and appoint Justice Yahya Afridi as the country’s top judge, replacing former chief justice Qazi Faez Isa. 

The opposition and the legal fraternity had opposed the amendments, arguing that they were aimed at granting more power to the executive in making judicial appointments and curtailing the independence of the judiciary. The government denies this.


Pakistani forces kill six militants in shootouts near border with Afghanistan — military

Updated 04 November 2024
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Pakistani forces kill six militants in shootouts near border with Afghanistan — military

  • Pakistan’s Khyber Pakhtunkhwa province, which borders Afghanistan, has witnessed a number of attacks recently
  • Pakistan blames the surge in militancy on militants operating out of Afghanistan, Kabul denies the allegations

ISLAMABAD: Pakistani security forces have killed six militants in two separate engagements in the country’s northwestern Khyber Pakhtunkhwa (KP) province, the Pakistani military said on Monday.
A militant was killed in an exchange of fire during an intelligence-based operation in North Waziristan’s Dosali area, according to the Inter-Services Public Relations (ISPR), the military’s media wing.
In the second incident, Pakistani forces intercepted a group of militants while infiltrating the country’s border with Afghanistan in the South Waziristan district. Five militants were killed as a result.
“Pakistan has consistently been asking Interim Afghan Government to ensure effective border management on their side of the border,” the ISPR said in a statement.
“Interim Afghan Government is expected to fulfil its obligations and deny the use of Afghan soil by Khwarij [militants] for perpetuating acts of terrorism against Pakistan.”
Khyber Pakhtunkhwa, which borders Afghanistan, has witnessed a number of attacks by the Tehreek-e-Taliban Pakistan (TTP) and other militant groups that targeted security forces convoys and check posts, besides targeted killings and kidnappings of law enforcers and government officials in recent months.
Pakistan has frequently accused neighboring Afghanistan of sheltering and supporting militant groups, urging the Taliban administration in Kabul to prevent its territory from being used by armed factions to launch cross-border attacks.
Afghan officials, however, deny involvement, insisting Pakistan’s security issues are an internal matter of Islamabad.
 


Pakistan Navy test-fires ship-launched ballistic missile ranging 350 kilometers

Updated 04 November 2024
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Pakistan Navy test-fires ship-launched ballistic missile ranging 350 kilometers

  • The missile is capable of striking land and sea targets with ‘high precision’
  • Pakistan, India consider their missile programs as deterrent against each other

KARACHI: Pakistan Navy has successfully test-fired a ship-launched ballistic missile having a range of 350 km and capable of striking both land and sea targets, it said on Monday.
Pakistan sees its missile development as a deterrent against nuclear-armed arch-foe India. Both countries have fought multiple wars since their independence from Britain in 1947.
The two South Asian neighbors have long been developing missiles of varying ranges in a bid to ensure deterrence against possible attacks from each other, with analysts often warning these developments could push the region into an arms race.
“Pakistan Navy conducted a successful flight test of an indigenously developed ship-launched ballistic missile,” the Directorate General of Public Relations (DGPR) of Pakistan Navy said in a statement.
“The weapon system with 350km range is capable of engaging land and sea targets with high precision.”
https://www.youtube.com/watch?v=ikldB3jieWo
The flight test of the weapon system, equipped with a state-of-the-art navigation system and maneuverability features, was witnessed by Chief of Naval Staff Admiral Naveed Ashraf, senior naval officers, scientists and engineers.
President Asif Ali Zardari, Prime Minister Shehbaz Sharif, Chairman Joint Chiefs of Staff Committee General Sahir Shamshad Mirza, Chief of Army Staff General Asim Munir and Chief of Air Staff Air Marshal Zaheer Ahmad Babar Sidhu congratulated the participating navy units and scientists on the development.
 
 


Qatar investment team due in Pakistan this month, PM Sharif says after Doha visit

Updated 04 November 2024
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Qatar investment team due in Pakistan this month, PM Sharif says after Doha visit

  • The statement comes days after Sharif visited Qatar seeking to bolster economic cooperation between both nations
  • Before arriving in Doha, Sharif attended the Future Investment Initiative in Riyadh and met the Saudi Crown Prince

ISLAMABAD: Prime Minister Shehbaz Sharif said on Monday a team of the Qatar Investment Authority (QIA) will visit Pakistan this month to set up an information technology (IT) park in the South Asian country.
The statement came days after Sharif visited Qatar while seeking to bolster economic cooperation amid Pakistan’s efforts to boost foreign investment to stabilize its frail $350 billion economy.
Before arriving in Doha, Sharif attended the Future Investment Initiative in Riyadh, Saudi Arabia, where he discussed trade and investment with Saudi Crown Prince Mohammed bin Salman.
Speaking at a meeting of his cabinet, Sharif said a QIA team will visit Pakistan this month, while its chief of Asia-Pacific & Africa Investments, Faisal Bin Thani Al Thani, will also arrive in Islamabad by the end of this month.
“Qatar emir said the same thing. They also suggested setting up an IT park here [in Pakistan],” Sharif told his cabinet members in televised comments.
During his visit, Sharif led delegation-level talks with the Qatari emir before holding a separate meeting with him to discuss a wide array of issues.
“The leaders reviewed the entire spectrum of Pakistan-Qatar relations, exploring potential avenues for enhanced cooperation in trade, potential areas of investment, energy, and culture,” Sharif’s office said last week.
He also met a delegation of the Qatar Businessmen Association (QBA) and invited them to invest in Pakistan’s energy, infrastructure and technology sectors.
The developments came amid Pakistan’s attempts to increase trade and foreign investment after it narrowly escaped a default last year by securing a last-gasp $3 billion financial assistance package from the International Monetary Fund (IMF).
The South Asian country has since sought to promote closer economic ties with regional and international allies to bolster its fragile economy, which has been suffering from a prolonged macroeconomic crisis.
 


Pakistan central bank cuts key rate by 250 bps to 15%

Updated 04 November 2024
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Pakistan central bank cuts key rate by 250 bps to 15%

  • Monday’s move follows cuts of 150 bps in June, 100 in July and 200 in September
  • It takes the total policy rate cuts in the country to 700 bps in under five months

KARACHI: Pakistan’s central bank cut its key policy rate by 250 basis points to 15 percent on Monday, it said in a statement, for a fourth straight reduction since June, as the country keeps up efforts to revive a sluggish economy with inflation easing.
Most respondents in a Reuters poll last week expected a cut of 200 bps after inflation moved down sharply from a multi-decade high of nearly 40 percent in May 2023, saying reductions were needed to bolster growth.
Average consumer price index inflation in the South Asian country is 8.7 percent in the current financial year, which started in July, the statistics bureau says. The International Monetary Fund (IMF) expects inflation to average 9.5 percent for the year ending June.
Monday’s move follows cuts of 150 bps in June, 100 bps in July, and 200 in September that have taken the rate from an all-time high of 22 percent, set in June 2023 and left unchanged for a year. It takes the total cuts to 700 bps in under five months.
October inflation came in at 7.2 percent, slightly above the government’s expectation of 6 percent to 7 percent. The finance ministry expects inflation to slow further to 5.5 percent to 6.5 percent in November.
However, inflation could pick up again in 2025, driven by electricity and gas price increases after a new $7-billion IMF bailout, and the potential impact of taxes on the retail, wholesale and the farm sector announced in the June budget to take effect in January 2025, some analysts say.