(Bloomberg): Pakistan’s government will meet with International Monetary Fund officials on Thursday with a potential bailout looking increasingly likely, according to a member of the country’s Economic Advisory Council.
An IMF visiting delegation will sit down with Pakistani officials at 11 a.m. in Islamabad, according to the finance ministry. While the talks are part of routine Article IV discussions, Pakistan’s need for external funding and its widening current-account and fiscal deficits will likely loom over the meeting.
“Pakistan’s economy has never been in such a bad shape,” Ashfaque Hasan Khan, an economic adviser to the government and the dean at the business school of Islamabad’s National University of Sciences and Technology, told Bloomberg. Khan said the lack of drastic changes or spending cuts in a revised budget presented this month suggested “perhaps the government has decided to go to the IMF.”
So far, Prime Minister Imran Khan has signaled reluctance to seek aid from the IMF, which may come with considerable constraints. After Khan’s July election victory, U.S. Secretary of State Mike Pompeo said he would oppose the use of IMF funds to pay off billions of dollars of opaque Chinese loans that Pakistan has taken on. The former cricket star has been trying to drum up cash from friendly countries — including China and Saudi Arabia — as well as making appeals to Pakistan’s diaspora as he seeks to roll out an “Islamic welfare state.”
The government has deep problems to fix. Less than 1 percent of the nation’s more than 200 million people file tax returns, foreign-currency reserves have plunged by a third this year to below $10 billion, the current-account deficit stands at more than 5 percent of gross domestic product and the rupee is down 12 percent against the dollar this year. It’s a familiar pattern for South Asia’s second-largest economy, which has taken 12 IMF loans since the late 1980s.
Finance Minister Asad Umar told Bloomberg last month that he estimated Pakistan may need more than $12 billion and a decision on where to source funds had to be made by September. However, the government’s economic advisory body has only held one meeting so far and has yet to discuss a bailout or whether to ask the IMF for support, said Ashfaque Hasan Khan.
The economic adviser said the government and IMF will probably address the external gap and size of a possible bailout package size in this week’s meetings, though a final decision is unlikely to be taken, he said. Officials at the IMF in Islamabad declined to comment, while Noor Ahmed, a spokesman for the finance ministry, said “all options are on the table, nothing has been ruled out.”
“Given the scale of Pakistan’s external financing requirements –- and notwithstanding potential bilateral financial assistance from the Gulf Cooperation Council –- we think IMF support is likely to be needed and sought,” Bilal Khan, a Dubai-based senior economist at Standard Chartered Plc, wrote in a report on Tuesday.
The IMF meetings come ahead of a central bank meeting on Saturday, where the State Bank of Pakistan’s Monetary Policy Committee is expected to raise interest rates by 50 basis points to 8 percent, according to a median estimate of 13 economists in an ongoing Bloomberg survey.