The mess with the IMF is of Pakistan’s own making 

Pakistan’s deputy prime minister has accused the International Monetary Fund (IMF) of deliberately delaying the disbursement of funds as Islamabad is struggling to finalize a $7bn bailout deal with the multilateral lending agency. The outburst from Ishaq Dar who in the past had also served as the country’s finance minister came as the waiting period for the nod from the Fund’s executive board on the deal is getting longer. 

The bailout package is critical for the country facing a serious financial crisis. The delay in the disbursement of funds could have serious repercussions for an ailing economy. Islamabad’s worries have increased with its failure to get financial help from friendly countries. The South Asian country may not be facing the imminent threat of default on foreign debt servicing but the delay in the agreement with the Fund has fueled uncertainty.

Pakistan signed a loan agreement with the IMF at the staff level in the second week of July that required approval from the Fund’s executive board. But consent has yet to come as Pakistan has failed to meet some key conditions. There seems to be little hope of the deal coming through in the coming months as Pakistan’s case was not on the IMF Board’s calendar of engagements for the first week of September. 

Even if the IMF bailout package does come through, it will give the country only brief respite

- Zahid Hussain

The delay appears to have been caused by Pakistan’s failure to get debt relief from its major bilateral creditors, including China, and to arrange $2bn in fresh loans to cover the gross external financing gap for the present fiscal year. 

The IMF’s approval of the bailout package was also tied to firm commitments from Saudi Arabia and the UAE that they would roll over their combined debt of $12bn. Pakistani officials also hoped to get an agreement with Beijing on re-profiling the nation’s energy debt of $15bn. But there has not been any progress on either of them. Moreover, Pakistan has failed to meet the revenue targets agreed in the staff level agreement in July. 

Moody’s decision to upgrade Pakistan’s long-term issuer rating, following a similar announcement by Fitch, indicated confidence in the approval of the IMF package. Yet the delay is now causing anxiety in the markets.

Instead of admitting Pakistan’s own inability to meet those commitments, which have been the major cause of delay in closing the deal, Dar has blamed the IMF and geopolitics. In fact, Pakistan’s government avoids taking hard decisions because of political reasons, thus jeopardizing the country’s future. 

Dar’s statement is an attempt to cover up the failures of his own government. He is still not willing to admit the breach of agreement by the Pakistani government, which has widened the trust deficit with the lending agency. Such remarks from the country’s top officials do not help Pakistan’s case. 

The delay in the agreement with the lending agency may also affect Pakistan’s borrowing from other multilateral agencies and the expected flow of funds from friendly countries, causing our foreign exchange reserves to fall to a dangerous level. 

Even if the IMF bailout package does come through, it will give the country only brief respite and will not resolve the basic structural problems needed to take the economy forward. It is apparent the government has no idea where the country is heading.

Indeed, the disbursement of IMF funds is not all that is needed to address Pakistan’s current economic troubles, but it is a crucial stepping stone to acquiring other much-needed sources of financing. It is not just the external debt, but mainly the massive internal debt that has brought the country close to bankruptcy. The major problem is that this nation of more than 220 million people has been living beyond its means for a very long time and borrowing money even to run the state.

Pakistan has many times in the past found itself in the proverbial ICU and been resuscitated, of course with some outside help. The country is living in perpetual hope of being salvaged by our external benefactors. It may happen again, but that would not take the country out of the woods completely. Pakistan’s perennial economic problems will not go away with lifelines thrown by lending agencies and friendly countries. The situation has gone beyond a patch-up job.

A failure to address fundamental structural problems will keep the country trapped in a perpetual financial crisis, presenting the biggest threat to our national security. Instead of waiting for a lifeline to bail us out, we need to take tough reform measures before it is too late.

- Zahid Hussain is an award-winning journalist and author. He is a former scholar at Woodrow Wilson Centre and a visiting fellow at Wolfson College, University of Cambridge, and at the Stimson Center in DC. He is author of Frontline Pakistan: The struggle with Militant Islam and The Scorpion’s tail: The relentless rise of Islamic militants in Pakistan. Frontline Pakistan was the book of the year (2007) by the WSJ. His latest book ‘No-Win War’ was published this year. Twitter: @hidhussain