To secure loans from the International Monetary Fund across globe by any country especially Pakistan having hefty debt burden of external loans has to obey series of conditions to remain afloat in the global financial markets and procure fresh loans from the donor agency. It appeared that the decision of the former Finance Minister Asad Umar while delivering speech on number of occasions said that government would strike deals on our terms and would not risk our sovereignty while going for an agreement. Even the former finance minister said that arrangement of 12 billion dollars has been made to pay off external obligations which gave a general idea that government would strike deal according to their on whims and wishes. But whenever the countries, institutions or even an individual is seeking loan one could not set their own terms, rather the donor financial institutions or donor agency would disburse funds according to their conditions.
This delay in procuring loans from the international donor agency has further tarnished the image of the country and battered the economy, making huge cracks, in simple words a lost opportunity. To rescue from the collapse and to give support to our sagging economy like Pakistan we don’t have any alternate solution but to grab hands of International Monetary Fund for loans. The delay on part of the former finance minister Asad Umar has made heavy dents on the country’s economic structure.
There has been series of misgivings that have happened in the last six months. Before the elections most of the knowledgeable community having financial literacy were of the opinion that Pakistan has to seek loans from the International Monetary Fund. Moreover since long even a layman was aware that association of Asad Umar with Imran Khan (now the Prime Minister of Pakistan) would surely result in him being the finance minister. With the financial freedom and continuous placing of data by the State Bank of Pakistan, Pakistan Bureau of Statistics, Federal Board of Revenue and Economic Affairs Division one could easily have gauged the state of the economy. Where we are standing and what we have to do to arrest the continuous declining trend in the economy and what immediate steps or measures were required for the country’s economy. Unfortunately no such preparation was done by the Finance Minister.
However, delay in the decision to shake hands with the IMF caused great pain to the country’s economy which resulted in the slowing down of financial activity where all the sectors received heavy battering. Several businessmen across the board claimed that business activity has slowed down a lot. From real estate business, to construction, purchasing of mobile phones, buying and selling of shares, production slowdown in steel products, cement, textile flows, increase in the losses of the state-run companies, increase in unemployment, rise in the circular debt, dismal performance of exports, drop in revenue collection and sluggish trend in foreign investment. The government’s delay in agreement in November with the International Monetary Fund has brought us to the present turmoil. Moreover the IMF could have been tamed in November easily on the ground that we had just joined the bandwagon and need time to restore the financial adaptability. Now the conditions which have been orchestrated by the IMF have been focused to remove the ills in our economy and state-run companies.
So if we had entered the IMF program in November 2018, it was an ideal time for entering because in the past too, Pakistan Peoples Party and Pakistan Muslim League government’s tenure the country has procured IMF program in November and July soon after the respective elections, when the new government was saddling itself that was the best time to secure loans to run the affairs without any obstacles.
Securing loans would not have made heavy dents in the financial markets, Pakistan Stock Exchange in November was around 40000 points level since then it has lost nearly 5500 points and the market capitalization has suffered a decline of Rs 900 billion. Now with deceleration in the share price dark shadows of downgrading of the stock market have taken place from emerging market to the front evaporating confidence. However, few research houses recently ruled out any downgrading but fear couple of stocks might pull out from emerging to frontier.
Moreover, the rupee in November 2018 was oscillating in the band of Rs 138 which received shocks lost three percent in the process with value currently in open market pegged at Rs 142.50 and at interbank nearly Rs 141.40. This devaluation sparked uncertainty among the foreign investors. Outflows from stock market from July 1, 2018 to May 10, 2019 amounted to nearly 356 million dollars which showed that foreign investors were uncertain about the devaluation of Pak rupee as they wanted settling of the issues to make an entry into Pakistan.
Another key indicator received a set back because of delayed process of shaking hands with the IMF which slowed down business activity which could easily be gauged from the Large Scale Manufacturing numbers because in November LSM was on the positive side showing growth of 1.2 percent though slow but would have picked up but February numbers told a different story altogether as they were down 1.49 percent.
Even repatriation of profits and dividends nosedived. According to State Bank statistics, repatriation during July to March 2019 amounted to $1 billion from $1.6 billion in the same period a year ago.
This has been a dampener for the state of the economy and also tax collection which missed the ten months target by a huge margin. When the business activity would have slowed down revenue collection would suffer. Moreover, the two budgets announced by the new government, spear headed by the former finance minister slowed down the imports shrinking current account deficit but left black scars on revenue collection.
When November numbers (July to November period) hit the headlines, the collection was up by 20 percent and trailed to Rs 1.3 trillion but release of July to April statistics showed altogether a different picture. The revenue collection missed the stipulated target by hefty Rs 345 billion, reaching Rs 2.993 trillion. This resulted in projection of the government for the fiscal deficit, now there has been a loud uproar that deficit would cross 7 percent of the gross domestic product. To manage we should be tapping for more borrowings from the local banks which would be a costly affair as in the past 16 months benchmark interest rate has been increased by 5 percent to 10.75 percent. This showed that if in January 2018, to borrow Rs 2 trillion to plug the deficit, the cost would have been Rs 120 billion but now cost is near to double around Rs 220 billion which is an additional burden on national coffers.
The government during the process got loans from brotherly countries China, Saudia Arabia and United Arab Emirates where the country’s foreign exchange reserves strengthened but heavy debt payments reduced the volume. In all foreign exchange reserves got a boost by $7 billion from approved $8 billion, the reserves from November level showed a rise of $1.8 billion to $15.8 billion. Had an agreement been signed in November it would have surely opened the floodgate from other donor agencies and Pakistan would have secured loans from the World Bank, Asian Development Bank and Islamic Development Bank and even could have floated Euro Bonds and Sukkuk. Though we can float the same after even securing IMF loans but in the meantime the country has lost nearly seven months in the process, where each day the country had to pay billions of rupee as debt an opportunity has been lost and has been termed as a financial crime.