NEW YORK - With Pakistan facing a serious financial crisis, Asad Umar , the Pakistan Tehreek-i-Insaf leader likely to be the next finance minister, has estimated that the economy may need more than $12 billion to overcome it, with a decision on where to source the funds to be made within six weeks.
In an interview with Bloomberg, an international news service, Umar, a former head of Pakistani conglomerate Engro Corp., was quoted as saying Friday that Pakistan’s financing gap is somewhere between $10 billion to $12 billion, though the new government would need a bit extra so it does not live on the edge.
“The decision needs to be taken in the next six weeks, the further you go forward the more difficult, the more expensive the options become,” Umar said in Islamabad. Pakistan could turn to the International Monetary Fund, friendly countries and issue diaspora bonds to bolster the country’s depleting reserves, he said.
Pakistan’s deteriorating finances is a key challenge for new leader Imran Khan, who is working to form a coalition government after winning the most seats in last week’s election. Many investors and analysts see a bailout from China or the IMF as inevitable, Bloomberg said. Foreign-exchange reserves have slumped this year on the back of a widening current-account deficit, prompting the central bank to devalue the currency four times since December and hike interest rates, according to the report. Moody’s Investors Service downgraded the nation’s outlook to negative last month, citing the nation’s worsening finances.
Umar said his party has not yet spoken to any potential lenders. “No formal work can be started until the government is formed,” he said. If Pakistan asks the IMF for support, it would not be the first time, it was pointed out. The nation has gone through decades of debt blowouts and balance-of-payment imbalances and 12 IMF programmes since the late 1980s. The amount of Chinese loans given to Pakistan over the last 13 months alone comes close to the IMF’s last bailout of $6.6 billion.
Those vast debts to Beijing have prompted worries from U.S. Secretary of State Mike Pompeo, who said this week he would be watching to see if Khan’s new government uses IMF funds to pay off the opaque Chinese loans. Umar said he would bring more transparency to the more than $60 billion Belt and Road infrastructure projects in Pakistan and responded to Pompeo’s comments. “One friendly advice to the Americans, we’ll worry about our Chinese debt, but I think they better handle their own Chinese debt first,” he was quoted as saying.
“We have a serious external debt problem, I’m not saying we don’t, though, we don’t have a Chinese debt problem.” With Pakistan’s finances under stress Khan may struggle to implement his plans to create an Islamic welfare state.
Umar said his party would not attempt to privatize Pakistan’s bloated and loss-making state companies such as Pakistan International Airlines Corp. and Pakistan Steel Mills.
Umar said within the first 100 days of the new administration, the state-owned firms will be shifted into a wealth fund similar to Singapor’s Temasek Holdings Pvt. to remove them from political interference. The government will also have to take over some, if not all, of the national airline’s 367 billion rupee debt ($2.1 billion) to start the carrier’s turnaround, he said. “Whatever has to be done, has to be done in the next few weeks,” Umar said. “It should have been done six months back.” Here are some other key comments Umar made in the interview:
On the currency: Currency alignment should be decided by the state bank based on economic fundamentals, not by finance ministry based on political considerations. “I don’t think the IMF wants free-float for Pakistan, it’s such a thin market.”
On taxes: To make businesses more competitive with regional countries, the new government plans to decrease taxes on energy supply factories and agriculture. It will cover up the lost revenue by introducing a wealth tax.