The option of going back to the International Monetary Fund for a fresh programme, “remains on the table”, but is unlikely to be used unless the balance of payments situation really gets out of government control.

“The Fund can be compared with a doctor: you do not visit him unless you are actually ill,” a senior official of the federal finance ministry, requesting anonymity, told Dawn.
He said the option of going to the Fund had been discussed a few times in the recent weeks but no timeframe has been set. “We will go to the IMF when we have to, neither before nor
after that,” he said.

“This government, unlike the previous one, had never claimed to have smashed ‘kashkol’ or the begging bowl when it terminated the previous loan with the IMF last year.” The option of returning to the Fund has come under discussion in relation to rising global crude prices that are expected to spike to $130 a barrel from the current level of $110-112 owing to growing tensions in the Middle East over Iran’s nuclear programme.

In addition to global oil prices, the diminishing foreign assistance, falling private investment and widening trade gap also remain a matter of serious concern for the country’s economic managers.

“All these challenges, particularly oil prices, could bring the balance of payments situation under pressure, cause the foreign exchange reserves to deplete fast and rupee to become even cheaper against dollar, leaving the government with no choice but to seek help from the IMF,” the official said. He reminded that the country had to turn to the Fund in 2008 for balance of payments support after the global oil price shocks shook the economy and led to depletion of foreign exchange reserves and 27 per cent depreciation in the value of the rupee.

The official, however, was of the view that the government, if it could help it, would resist going back to the Fund until new elections are held even if the balance of payments situation showed signs of weakness. “My assessment is that the government wouldn’t want to risk losing votes by seeking yet another programme with the Fund in an election year because of the strict, unpopular conditions attached to it,” he said.

“It would be difficult for the government to agree ahead of the elections to the conditions that the fund would like to see to be implemented in return for its loan. This is the time that the government would want to give relief to people rather than squeeze them further,” he argued.

Pakistan had terminated the previous $11.3 billion loan from the IMF last year after the Fund stopped disbursement of last two tranches of more than $3 billion over Islamabad’s failure to implement fiscal and tax reforms, restructure power sector, abolish food and energy subsidies etc, due to political opposition and lack of required majority in the parliament.

Analysts believe the government is largely banking on the disbursement of the stalled Coalition Support Fund (CSF) receipts by the United States, recovery of PTCL privatisation proceeds, auction of 3G telecom licenses and increase in remittances to delay it’s journey back to the Fund. The government hopes that the funds to be received from these sources in the next five months would help its cover the financing gap in spite of servicing of IMF loan.

The government feels that the external sector is showing signs of growth on the back of a year-on-year spike of 19.5 per cent in remittances to $6.3 billion in the first half of the current fiscal to the end of December. The current account balance posted a surplus of $160 million last month. The domestic revenues grew 27 per cent to Rs840 billion with the economy expected to expand by four per cent, up from earlier estimate of 3.6 per cent.

Analysts insist that the widening current account deficit of $2.154 billion in the first six months of the current fiscal compared with a surplus of $8 million last year and the start of the repayment of the IMF loan could bring further pressure on foreign exchange reserves and the rupee. With little foreign official and private capital inflows coming in and the trade gap expanding over energy shortages, they believe, it will be a major challenge for the government to avert a balance of payments crisis without seeking the IMF’s financial
assistance.

“Sooner or later Pakistan will have to go to the IMF for financial help because of its failure to reform its tax regime, restructure and privatise loss-making public sector entities (PSEs), control wasteful expenditure on subsidies and reorganise power sector,” said a Karachi-based economist, who works for a foreign bank.