Federal Finance Minister Ishaq Dar’s optimism about Pakistan not defaulting indicates quite the opposite. Once again, a foreign debt servicing payment has been made, once again the country has managed to meet it, but only at the cot of its reserves falling below the level needed to pay for a month of exports, or that needed to cover the deposits with the State Bank of Pakistan made by friendly countries. These deposits are supposed to be there merely to let the State Bank bolster its forex reserves figure, not be actually used, as they are. While Senator Dar’s optimism is touching, it is wearing a little thin, and perhaps the frequency with which he has repeated it makes it less credible than ever. However, he has taken a new tack with respect to the stalled IMF programme, which has been stalled. Senator used to try and bolster market confidence by saying that it would be revived, but now he has said that it was due to expire anyhow on June 30, meaning that he did not see much chance of its revival.
The first issue that will arise is whether the measures taken the government, in the hope of meeting IMF conditionalitiies, were worth it. This is particularly relevant to those sections which suffered the brunt of those measures, which is everybody. Senator Dar went to the extent of bringing in a mini-budget with less than half the financial year left, but to no avail. However, the history of Pakistan’s engagement with the IMF is littered with failed and incomplete programmes, and thus makes it likely that Pakistan will once again have recourse to it.
The reason for that explains why IMF conditionalities next time around are likely to be even harsher than the current ones. Another problem for Pakistan is that IMF aid is also linked to US approval, as shown by Pakistani approaches to the USA for help with the IMF. That approval is no longer there, because of Pakistan’s friendship with China. It has also been no help that the IMF is unsure about whom to talk to. The current wave of political instability has failed to give the impression that the situation is stabilizing, thus leaving the country in a dangerous place. Senator Dar has also not taken any of the steps towards economic reform that would both satisfy the IMF, and make Pakistan independent of it.
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