ISLAMABAD – Pakistan is left with no option but to approach InternationalMonitory Fund (IMF) yet again for another loan programme despite tallclaims.
“Sooner or later the government will be requesting for another loanprogramme as the financial gap cannot be bridged with the issuance of morebonds and Sukuk,” said former secretary finance Dr Waqar Masood Khan duringan exclusive interview with Pakistan Today.
Dr Masood, who has been the longest-serving secretary finance during thepast 10 years and looked into financial matters of the present governmentfor nearly four years as secretary finance, has suggested the government toavoid controlling the economy and let the foreign exchange set its own rate.
He added that the government urgently needs to cut budgetary expendituresexcept for those projects being completed under China Pakistan EconomicCorridor (CPEC) or with foreign investment to lower the financial woes ofthe government.
“Foreign exchange reserves are like blood in a human body. What is therationale behind spending reserves for just maintaining the rupee valueagainst the dollar?” he questioned adding that by taking wrong decisions onpolitical considerations the government has destroyed the progress of theeconomy that has taken years to build.
Dr Masood said that it is unfortunate that we as a nation hinder progressby taking two steps forward and one step back. During the early three yearsof PML-N government and after the launching of the IMF programme, thereserves kept shooting up. He added that “The reserves only started todeplete when the government decided to control currency value.”
He said that current account deficit is tolerable as long as the governmenthas high reserves, but the problem is that period of high reserves amidhigh current account deficit is simply not sustainable, unless, the debtkeeps on coming in at concessionary rates and FDI keeps on pouring in.
The sharp decline in reserve of $ 4 billion is the cost of maintaining astable exchange rate. Unfortunately, State Bank of Pakistan (SBP) has beensupplying dollars whenever it felt pressure on the exchange rate resultingdepleted reserves, which were built after loans from IMF and other sources.The privatisation proceeds, CSF receipts, auction of spectrum licenses,loans from IMF, World Bank and ADB, issue of Bonds and Sukuk and loans fromcommercial banks had collectively added to the historic reserves of thecountry.
“Painfully the reserves are being used just to avoid depreciation of therupee,” Dr Masood said. Since reserves have depleted to a dangerous level,approaching the IMF has become inevitable.
Talking about how the three-year IMF programme completed by the governmenthad supported the economic situation of the country, he said, thehome-grown economic reforms agenda under the IMF programme bore impressiveresults as economic growth revived, inflation remained historically low,deficit went down to nearly 4 per cent from 8.2 per cent, revenues grew bya cumulative 60 per cent, reserves increased to a historic high of $ 24.5billion in October 2016 and the exchange rate remained stable.
However, he said, the momentum of improvement in the economy could not bemaintained in 2016-17 for various reasons including an unprecedented surgein fiscal and current account deficits, leading to loss of reserves.
During 2013-16, Pakistan’s economy showed unprecedented improvement.Earlier, stagnant and low growth, rising inflation, high fiscal deficit,falling revenues, rising circular debt in the energy sector, decliningreserves, unstable exchange rate and declining private sector investmentswere the highlights of the economy. But then in 2016-17, there wasan unravelling of the gains, primarily due to an unprecedented surge infiscal and current account deficits, leading to loss of reserves.
In reply to a query, he said, “Since the budget (2017-18) is harmingreserves, the expenditures should be cut down immediately. The country isnearly back to where it stood in June 2013.”
Talking about positive aspects of the economy, Dr Masood said that the paceof investment following the development on CPEC was an encouraging sign forthe future of the economy. “We have an expanding and booming economy. Theprice of oil in the international market is still low if we compare thesame in the government of Parvez Musharraf. Besides, the overall trust ofinvestors has improved following the Chinese investment,” he added.
“Unfortunately we have failed to exercise due care in economic managementotherwise the opportunities reflected by the spectacular growth in spendingand imports would have meant a boon for the economy,” he said.
To a question related to the payment of over Rs 400 billion to IPPs forclearing circular debt by the government in 2013, he said the dues neededto be cleared. But the real issue is about pilling up the debt to the sameposition again after few years.
In reply to another query, he said that the country should not be worriedabout the trade deficit as imports are increasing due to project-relatedimports under CPEC. However, the real issue is the increase in fiscaldeficit causing an explosive growth in the current account deficit from 1.7per cent to 4 per cent of GDP.
Dr Masood further added, IMF had offered Pakistan another programme aftersuccessful completion of the first but Pakistan refused while optinganother lender.