lahore -

The upcoming government of the PML-N has no other option but to approach International Monetary Fund to control its fiscal imbalances, which country has been facing due to dwindling foreign reserves, balance of payment crisis, weakening exchange rate and financial mismanagement during the last five years, economists said.

“However, this is short-term solution and borrowing a long-term loan from the IMF is not the most viable and rational option for any country,” they warned.

There was consensus among the major financial experts, noted economists and representatives of trade and industry on availing short-term loaning facility from any donor including the IMF, saying that there is little doubt that the new government will have to agree to a multi-billion-dollar bailout from IMF as a short-term way-out, however some experts have opposed the idea, insisting on home-ground initiatives to revive economy.

Noted economist Dr Ashfaq Hassan Khan observed that Pakistan’s external financing over the next two to three years requires around $10-12 billion, which can be bridged only after obtaining a bailout package from the International Monetary Fund. He suggested the new government to arrange at least financing of over $7b from the IMF, World Bank and the Asian Development Bank. He said that IMF bailout package of around $5 billion is enough to repay the outstanding debt on an earlier $11 billion package that was suspended in 2011 after economic and reform targets were missed. The new IMF loan would likely spread repayments over five to 10 years, he said. He added that Pakistan requires between $6-$9 billion to avoid a balance of payments crisis.

To bridge financing gap of $5 billion, there are different medium-term solutions to fill this deep gap as the new government will have to generate non-debt inflows such as foreign investment and remittances or cut down trade deficit by boosting exports and reducing imports, observed former financial adviser Dr Salman Shah. He pointed out that in order to tackle the situation, the government borrowed an amount of $7.8 billion from IMF in 2008 under Stand-by Arrangement programme. The loan was to be repaid in different phases up till June 30, 2014. To avail option of IMF $5 billion under Extended Fund Facility (EFF), Pakistan would have to ensure adjustments of fiscal side to the tune of 3-4 per cent of GDP including enhancing revenues by 2 per cent of the GDP and curtailing expenditures by 1.5 percent of GDP.

Discussing the conditions of the financial donor, he said that Pakistan will have to reduce its power sector losses up to 1 per cent of GDP by raising power tariff, abolition of subsidy, better governance structure and controlling electricity losses just in few months.

Noted economist Dr Qais Aslam said that Pakistan has already paid around $3.24 billion and the repayment of the remaining sum is indeed a gigantic task. In April 2013, Pakistan paid its installment of IMF loan worth $106.55 million and in May it has paid amount of $533 million, resulting in swift depletion of foreign exchange reserves. He said that Pakistan’s debt servicing requirements will be at $6 billion in 2013-14 out of which $3.5 billion to be repaid to the IMF.

FPCCI regional chairman Azhar Saeed Butt maintained that already foreign exchange reserves held with the State Bank of Pakistan have fallen to $6 billion from around $7.2 billion in March, 2013.This troubling front coupled with weak balance of payment situation has fallen upon the shoulders of caretaker government.

All Pakistan Business Forum chairman Nabeel Hashmi stated if Pakistan is unable to attract Foreign Direct Investment (FDI), if forex reserves deplete at the current rate, if government keeps on borrowing from the central bank and if law and order situation does not improve then the next government would have no option other than borrowing from IMF. He said that borrowing a long-term loan from the IMF will not be fruitful for Pakistan, as terms and conditions would be much harsher. For instance, it would have a very negative impact on our exchange rate as rupee would devalue further against other currencies, hitting the local industry.

APBF also feel that condition attached with the IMF loan may be such that deter future investment from local as well as the international investors into Pakistan. Macroeconomic stability can easily be achieved through sound economic policies and sheer commitment, he suggested.

The PBC Chairman Sikandar Mustafa Khan, stated that energy crisis has retarded Pakistan’s GDP growth rate by three to four percent and also deterred any substantial local and foreign investments. A chronically weak fiscal structure has fuelled high government borrowing and inflation, leading to a fiscal deficit of eight percent, which must be reduced to four percent. This along with policy uncertainties and weak governance standards needs to be urgently addressed if the GDP growth rate is to be sustained to at least 6 to 7 percent in the next few years.

LCCI president Farooq Iftikahr viewed that no bailout packages or international grants from other countries can save Pakistan from its economic woes. He said the government would have to re-organise power sector, restructure public sector businesses and reduce trade deficit to overcome economic woes.

As a first step, Federal Board of Revenue (FBR) should be restructured so as to induce more people in the tax paying net.  Foreign aid is a vicious circle, and Pakistan is wallowing in the midst of it.

FPCCI former MC member and IHA director Usman Ghani pointed out that foreign currency reserves could deplete to $2 billion by end of next financial year, keeping in view of heavy repayments to the IMF as well as slowing down of foreign inflows. He warned that the country’s reserves could turn into negative in financial year 2014-15 in case of having no programme with the IMF, which is ultimately not an option for Pakistan.