KARACHI: Pakistan has questioned whether Islamabad will be able to reclaim the stalled $7 billion lending program due to contradictory reports regarding the talks between the government and the International Monetary Fund (IMF), which are scheduled to conclude on Thursday (today).
On the eve of the talks’ conclusion, State Minister for Petroleum Musadik Malik’s recent statement that there are “sufficient useable stocks of petroleum products available in the country” has dual meanings, despite Prime Minister Shehbaz Sharif’s assurance that his government will fulfill all prerequisite conditions.
Pakistan will undoubtedly default on its international payments in the event of a further delay in the program’s resumption, but will it become another Sri Lanka? Will there be severe food and medicine shortages for Pakistani citizens? Wait in long lines for gas for hours (possibly days)?
The possibility of the talks coming to an unsatisfactory conclusion has been ruled out by financial professionals. Instead, they have high hopes that the government will defeat the IMF, avoid default, restructure debt, and negotiate difficult economic reforms.
“In case of another delay in the resumption of the programme, which is unlikely,” Ismail Iqbal Securities Head of Research Fahad Rauf stated to The Express Tribune, “the government will default on its foreign debt repayment as it will want to utilize the low foreign exchange reserves to survive.”
Second, there will soon be a shortage of essential goods, like food and medicines, and high inflation. After the IMF program is implemented, inflation will rise by 50%, compared to the current projection of 30-35%. Similarly, imports and exports will slow to half for a brief period, the majority of industrial units will shut down, and the agriculture and service sectors will also face the heat, he predicted, the rupee’s devaluation will be steeper than the current consensus of Rs265-275/$.
Pakistan could end up being another Sri Lanka. He added that in such a scenario, people might take to the streets and stand in long lines to purchase gasoline and diesel.
Pakistan cannot afford a social crisis of this magnitude. Instead, “the government’s recent actions strongly suggest that it will convince the IMF to resume its program,” Rauf said, adding that Pakistan will also comply with the other conditions because it has made the difficult choice to end its control over rupee-dollar exchange rates and raise gasoline prices.
Khurram Schehzad, CEO of Alpha Beta Core, also ruled out a further IMF program restart delay. Regardless of whether the default occurs today or tomorrow, Pakistan must return to the lender.
He explained, “The IMF is the lender of last resort; it was created to help countries avoid default.” In the past three and a half years, the nation has attempted to revive the ongoing program at least three or four times. The lender has been irritated by this, so it is taking a firm stance. He stated that although there are possibilities for the talks to be extended by a few days, they will conclude on a positive note.
In the meantime, on hopes that the government will persuade the IMF to resume its loan program, the rupee saw a significant recovery of 1.08% (or Rs2.95) to close at Rs273.33 against the US dollar on Wednesday in the interbank market.
On the other hand, as the rupee-dollar parity increased, gold prices in Pakistan decreased by an additional Rs2,000 per tola (11.66 grams) to Rs198,000. In the past four days, the commodity has decreased by Rs10,500 per tola overall.
