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International Monetary Fund

CHALLENGES INTO OPPORTUNITIES

Poised to become the Prime Minister (PM). Imran Khan, Chairman of Pakistan Tehreek-e-Insaf (PTI) will lead a new Coalition govt. Among the acute challenges will be severe distress in the economy. Foreign exchange reserves have depleted due to widening of current account deficit and repayment of previous loans. The International Monetary Fund (IMF) may be approached for a US$10 to 15 billion bailout package to stabilise the external sector. Rather difficult given that the US has a say in IMF affairs and US-Pakistan relations are at their lowest ebb. Out of the blue came a warning shot, US Secretary of State Mike Pompeo warning Pakistan, “There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself”. While the coupling of one with the other is mystifying, for the foreseeable future the IMF option therefore appears closed. With the talk of a bailout by China not confirmed, the PTI govt needs engage the US govt with pragmatism, apprising them of the new dynamics emerging in the region and the need for both the countries to have a more constructive relationship.

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OPPORTUNITIES FOR THE GOVT

The balance of payment crisis has been aggravated by major currency devaluations taking place over the past few months, the Rupee plunging 15% since December last. Surprisingly the currency has appreciated by 4% .e. Rs 7.00 since Imran Khan’s elections on July 25. The State Bank having had to raise interest rates, the current-account gap widened by 43% in the last fiscal year with foreign-exchange reserves dropping alarmingly to $ 9.1 billion. While a China- sponsored “bailout” is rumoured, the newly elected govt might approach the International Monetary Fund (IMF). These loans come typically with strings attached i.e. curbing fiscal deficits, tighter monetary policy, etc one can expect even tougher conditions given that many structural reforms promised to the IMF were either delayed or not done by the previous govt. The US being front and center in any IMF initiative, one can also expect another boat of “do more”.

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