Why IMF now?

[FalconStar]

Many people are wondering why did PM Imran Khan decide to approach IMF now. while he used to criticize them so badly before.
Many people who hate IK are just jumping up and down with "UTURN UTURN" chants. Many of his own supporters are worried why did he make this decision. While many are still supporting him, some have jumped the band wagon of criticism and have gone wild with the like minded.

Well you could argue that he did go back on his own words of being against an IMF bailout, but you need to see all the facts first before you come to a horrifying conclusion.
As it was announced yesterday IK has given the go ahead to Finance Minister Asad Umar for initiating dialog with IMF on a potential bailout package.

You have to understand that it's not a done deal that they will take the IMF package. The basic idea behind this decision is to get to know the terms of IMF before PM embarks on his China trip next month. If that was not the case they could have waited till the by-elections were over to announce this decision. They want to be prepared to get the best possible deal be it from China or IMF. China could offer us a much better deal, but with some strings attached and they want to make it even better by making our Chinese friends know, that we do have another option if your deal is not that good.

What we need to understand is even if we do take an IMF package, it wont be bigger than
$7-8 Billion. Which will be enough, now that all closed textile mills are reopening and they will provide some boost to the Exports, hence some relief in the trade deficit. The decisions to fix the economy by taking some tough decisions is already on it's way and once this money laundering case comes to the conclusion it'll also help in stiffing any further loss to the State.

We need to have a little patience, we expect IK to fix all the ill's of this Nation in just a few months. Don't forget that these leeches have been sucking this country dry from the past 40 years and fixing the destruction they have done to this country is going to take some time.
You gave those Criminals years after years. We don't ask for that much time but at least give this Government a couple of years to show you some progress and then you can say whatever you want. But please have some patience.

 

[khansaheeb]

This video ( a bit long) below explains well why we shouldn't take aid from anyone:-

 

[war&peace]

https://twitter.com/x/status/1049577970623365120

 

[Imad.Khan]

Tough times require tough decisions. The government was stuck between a rock and a hard place. Either they stay stubborn to their words of not going to IMF and let Pakistan default, or knock on every door and see which one can save Pakistan from defaulting and be labelled as U-Turn Khan.

Thankfully sense prevailed and Pakistan will be saved from default...............this time. The bigger question is what plan do they have to make sure that they don't get into a situation like this again.

 

[Turingsage]

A contrary view from PML (N). I really have no skin in this game but the last govt must explain what they did.

The IMF programme

The PTI government has finally decided to disclose to the nation that it is going for a new IMF programme. It waited to disclose this until the eve of the finance minister’s departure to Bali to negotiate with the Fund team. This isn’t the first time that a government has sought an IMF loan programme, but I hope it is the last time.

In 2013, when the PML-N inherited the government from the PPP, the economy was under stress. At the time, economic growth in Pakistan stood at three percent, the inflation rate was eight percent, and our budget deficit was a staggering 8.2 percent. Our foreign reserves were low and decreasing to the extent that by February 2014 the State Bank of Pakistan (SBP) was left with only $2.5 billion.

International rating agencies such as Moody’s had given Pakistan’s economy a negative rating. Insufferable power and gas shortages were crippling the industry and our manufacturing sector was hardly growing. Under such tough circumstances, the PML-N negotiated an IMF programme that was back-loaded, which means that most of the money we received were in later quarters and in the first year our repayment to the IMF from previous loans was actually more than the tranche we received from the Fund.

An IMF programme obviously implies belt-tightening and that’s what the PML-N government did. In the very first budget, we cut the non-salary current expenditures of the government by 30 percent. But we increased expenditures under four heads.

One, development expenditures. Pakistan had a woeful shortage of roads, power and gas. Yet many projects, such as the Tarbela extension projects and the Neelum-Jhelum hydro project, were not being completed due to a shortage of funds. Two, defence expenditures. Again, we had serious law and order problems in different parts of the country and proper funding was required. Three, we increased funding for the Benazir Income Support Programme, which helped the poorest of the poor. We increased both the monthly stipends and the number of recipients and increased the allocation from Rs40 billion to Rs125 billion in five years.

Four, we increased the money going to the provinces, as mandated by the NFC award. In five years, our government increased provincial transfers from Rs1,200 billion to Rs2,400 billion, approximately.

In five years, including three years under an IMF programme, we were able to keep our inflation under five percent, our average deficit under 5.5 percent, increase growth every year, ending our term with a growth rate of 5.8 percent – the highest in 10 years – install 11,000 MWs of power-generation capacity, and build 1,700 kilometres of motorways. The stock market went from 19,000 points to over 54,000 points. But because of political uncertainty, it had come down to 47,000 points by the time we left in May 2018, still about 10,000 points above Monday’s close.

Although we showed a good performance overall, according to me, we made two mistakes. First, we weren’t able to privatise public-sector enterprises, such as PIA and electricity-generation or distribution companies. While the opposition did block our efforts, the onus was still on us to do so. The opposition initially also opposed CPEC, but the then PM Nawaz Sharif and then planning minister Ahsan Iqbal took everyone into confidence. By the fourth year, even the then Khyber Pakhtunkhwa CM Pervez Khattak started attending CPEC ministerial meetings.

The second mistake we made was to not devalue the currency in 2016. Nawaz Sharif was always a believer in a strong currency that allowed people on fixed and low incomes to enjoy a higher standard of living. To me, that meant keeping inflation low and alleviating the need to devalue. But because our inflation rate, albeit low, was still higher than that of our trading partners, and some of our competing countries were devaluing, keeping the rupee fixed at a nominal exchange rate meant that our exports were losing competitiveness and our central bank was subsidising imports.

This policy resulted in high current account deficits in the last two years and a depletion of foreign reserves. Even so, when we left in May, SBP reserves were $10 billion and country’s reserves stood at $16 billion.

To look a little more into the current account deficit, our exports of $23 billion plus remittances worth $20 billion give us around $43 billion. Add another $2 billion from foreign direct investment. But our imports are north of $58 billion. This leaves a gap of $13 billion, which is unsustainable. (We can sustain a deficit of around $3 billion to $4 billion).

Before we left, we devalued the currency by 10 percent and the caretakers did so by another 10 percent. This means that the rupee has more or less found its right value. The onus now is on the PTI government to keep inflation low so as to not render our industry, which is finally getting the energy it needs, uncompetitive. Our central bank, perhaps prodded by the new finance minister, has already increased its policy rate by a full two percent. It’s not clear to me why, after the massive devaluation, a further weakening of aggregate demand is needed to slow down imports. Many macroeconomists believe that a government’s stance on external trade should be expressed through exchange rates and not through interest rates.

The PTI today has inherited a far more resilient economy than we did in 2013. But while we didn’t waste time in blaming the previous PPP government, the PTI government acts as though blaming the PML-N for every imaginable problem is a panacea for all of Pakistan’s problems. What is truly unfortunate is how ministers have talked down our economy, and how this has resulted in investors losing confidence. Since the PML-N’s term has ended, our stock market has lost 20 percent of its value. Who is answerable for that?

The government has also misinformed our people. Whereas PM Khan says our external debt is $90 billion, it was actually $75 billion on June 30, 2018. He’s adding figures for private-sector borrowing to the government debt figures. That’s just wrong. When we came into power, Pakistan’s external debt was $48 billion. When we left, we had taken an additional $27 billion in external debt. But just the losses in the stock market on Monday, as it was dealing with the PTI government’s ineptitude, were $1.9 billion. Since the market’s peak in 2017, investors have lost $40 billion.

The PTI government is also always blaming us for taking on a huge total debt. But our debt-to-GDP ratio is still better than that of Japan, Italy, Singapore, America and Sri Lanka – and only a shade higher than India. And what is truly ironic is that this year the PTI government, with all its austerity and auctioning of buffaloes, will incur higher debt than we took on average in our five years.

As we wish our finance minister good luck for his Bali trip, we hope he won’t negotiate a programme that burdens the poor, results in high inflation, and destroys growth. And finally, despite this U-turn by the PTI government and in spite of PM Khan’s pledge, I hope the prime minister will live long.

The writer has served as federalminister for finance, revenue andeconomic Affairs.

https://www.thenews.com.pk/print/378789-the-imf-programme

 

[pzfz]

Singapore Italy etc can afford a higher debt to gdp ratio because they're much more/bigger developed economies. Besides, this isn't about the debt to gdp ratio. Miftah Ismail should stick to candies and lollipops.

Personally I just want a few things out of this: For people to realize that KSA and China are NOT an alternative to the IMF and sound economic policies. Neither are there billions in offshore accounts out there that are going to magically appear and save Pakistan from doing the hard work. The stupid dam fund is a distraction and just holds up cash in the economy. And one last thing - where are all the Islamic finance/interest-free questions that were directed at Atif Mian and his supporters now? Why aren't those red-herrings being trotted out and directed at all the constitutional Muslims directing the economy now?

 

[Fawadqasim1]

This video ( a bit long) below explains well why we shouldn't take aid from anyone:-

Then how are we going to repay costly high interest short term loans taken by pmln in the backdrop of 90 dollars per barrel oil.

 

[khansaheeb]

Then how are we going to repay costly high interest short term loans taken by pmln in the backdrop of 90 dollars per barrel oil.

Digging for more, oil, gas , gold , uranium, copper etc and selling for profit. Increasing tourism, increasing manufacturing jobs, selling our education to foreign students, speeding up CPEC projects specially the train link etc etc.

 

[Peaceful Civilian]

Pakistan is not even in top 50 in loan list , Look all developed countries taking it, atleast they are getting clean water, not not dying from hunger. We should get more loans , but it depends on us how we spend.
Look how we took loan in past for loss projects like Metro projects. Then is how your economy falls , instead of spending money on productivity to return loan, we spent on loss project.
Also need to fight against corruption with bare hand.

 

[valkyr_96]

A contrary view from PML (N). I really have no skin in this game but the last govt must explain what they did.

The IMF programme

The PTI government has finally decided to disclose to the nation that it is going for a new IMF programme. It waited to disclose this until the eve of the finance minister’s departure to Bali to negotiate with the Fund team. This isn’t the first time that a government has sought an IMF loan programme, but I hope it is the last time.

In 2013, when the PML-N inherited the government from the PPP, the economy was under stress. At the time, economic growth in Pakistan stood at three percent, the inflation rate was eight percent, and our budget deficit was a staggering 8.2 percent. Our foreign reserves were low and decreasing to the extent that by February 2014 the State Bank of Pakistan (SBP) was left with only $2.5 billion.

International rating agencies such as Moody’s had given Pakistan’s economy a negative rating. Insufferable power and gas shortages were crippling the industry and our manufacturing sector was hardly growing. Under such tough circumstances, the PML-N negotiated an IMF programme that was back-loaded, which means that most of the money we received were in later quarters and in the first year our repayment to the IMF from previous loans was actually more than the tranche we received from the Fund.

An IMF programme obviously implies belt-tightening and that’s what the PML-N government did. In the very first budget, we cut the non-salary current expenditures of the government by 30 percent. But we increased expenditures under four heads.

One, development expenditures. Pakistan had a woeful shortage of roads, power and gas. Yet many projects, such as the Tarbela extension projects and the Neelum-Jhelum hydro project, were not being completed due to a shortage of funds. Two, defence expenditures. Again, we had serious law and order problems in different parts of the country and proper funding was required. Three, we increased funding for the Benazir Income Support Programme, which helped the poorest of the poor. We increased both the monthly stipends and the number of recipients and increased the allocation from Rs40 billion to Rs125 billion in five years.

Four, we increased the money going to the provinces, as mandated by the NFC award. In five years, our government increased provincial transfers from Rs1,200 billion to Rs2,400 billion, approximately.

In five years, including three years under an IMF programme, we were able to keep our inflation under five percent, our average deficit under 5.5 percent, increase growth every year, ending our term with a growth rate of 5.8 percent – the highest in 10 years – install 11,000 MWs of power-generation capacity, and build 1,700 kilometres of motorways. The stock market went from 19,000 points to over 54,000 points. But because of political uncertainty, it had come down to 47,000 points by the time we left in May 2018, still about 10,000 points above Monday’s close.

Although we showed a good performance overall, according to me, we made two mistakes. First, we weren’t able to privatise public-sector enterprises, such as PIA and electricity-generation or distribution companies. While the opposition did block our efforts, the onus was still on us to do so. The opposition initially also opposed CPEC, but the then PM Nawaz Sharif and then planning minister Ahsan Iqbal took everyone into confidence. By the fourth year, even the then Khyber Pakhtunkhwa CM Pervez Khattak started attending CPEC ministerial meetings.

The second mistake we made was to not devalue the currency in 2016. Nawaz Sharif was always a believer in a strong currency that allowed people on fixed and low incomes to enjoy a higher standard of living. To me, that meant keeping inflation low and alleviating the need to devalue. But because our inflation rate, albeit low, was still higher than that of our trading partners, and some of our competing countries were devaluing, keeping the rupee fixed at a nominal exchange rate meant that our exports were losing competitiveness and our central bank was subsidising imports.

This policy resulted in high current account deficits in the last two years and a depletion of foreign reserves. Even so, when we left in May, SBP reserves were $10 billion and country’s reserves stood at $16 billion.

To look a little more into the current account deficit, our exports of $23 billion plus remittances worth $20 billion give us around $43 billion. Add another $2 billion from foreign direct investment. But our imports are north of $58 billion. This leaves a gap of $13 billion, which is unsustainable. (We can sustain a deficit of around $3 billion to $4 billion).

Before we left, we devalued the currency by 10 percent and the caretakers did so by another 10 percent. This means that the rupee has more or less found its right value. The onus now is on the PTI government to keep inflation low so as to not render our industry, which is finally getting the energy it needs, uncompetitive. Our central bank, perhaps prodded by the new finance minister, has already increased its policy rate by a full two percent. It’s not clear to me why, after the massive devaluation, a further weakening of aggregate demand is needed to slow down imports. Many macroeconomists believe that a government’s stance on external trade should be expressed through exchange rates and not through interest rates.

The PTI today has inherited a far more resilient economy than we did in 2013. But while we didn’t waste time in blaming the previous PPP government, the PTI government acts as though blaming the PML-N for every imaginable problem is a panacea for all of Pakistan’s problems. What is truly unfortunate is how ministers have talked down our economy, and how this has resulted in investors losing confidence. Since the PML-N’s term has ended, our stock market has lost 20 percent of its value. Who is answerable for that?

The government has also misinformed our people. Whereas PM Khan says our external debt is $90 billion, it was actually $75 billion on June 30, 2018. He’s adding figures for private-sector borrowing to the government debt figures. That’s just wrong. When we came into power, Pakistan’s external debt was $48 billion. When we left, we had taken an additional $27 billion in external debt. But just the losses in the stock market on Monday, as it was dealing with the PTI government’s ineptitude, were $1.9 billion. Since the market’s peak in 2017, investors have lost $40 billion.

The PTI government is also always blaming us for taking on a huge total debt. But our debt-to-GDP ratio is still better than that of Japan, Italy, Singapore, America and Sri Lanka – and only a shade higher than India. And what is truly ironic is that this year the PTI government, with all its austerity and auctioning of buffaloes, will incur higher debt than we took on average in our five years.

As we wish our finance minister good luck for his Bali trip, we hope he won’t negotiate a programme that burdens the poor, results in high inflation, and destroys growth. And finally, despite this U-turn by the PTI government and in spite of PM Khan’s pledge, I hope the prime minister will live long.

The writer has served as federalminister for finance, revenue andeconomic Affairs.

https://www.thenews.com.pk/print/378789-the-imf-programme

Mifta ismail is a liar only came in when ishaq Dar left as a finance Minister. The buzz word for latter nincompoop was SPV so they created PHPL and hide the every mounting circular debt....in trillions now I believe.....Someone should see his pre election interview bragging how fast he is going to finish the circular debt but refusing to answer how. They did not extend long term financing which was always extended to the textile industry so their cost became higher than the Indian and Bangladeshi textile...thus our exports went down. Instead of fixing the economy for long term stable growth PMLN went for short term they could brag about. power projects were not financially feasible including solar. Same goes for the brt projects(upcoming Karachi brt may attract up to 7 billion in subsidies dont quote me sooner or later the same will happen to peshawer(Lahore already does...multan is a failure). I do agree that NFC has choked the federal government ability. These are only some of the macro issues that PLMN failed to address (What the provincial governments have done is another issue) given that industries such as the car kit assembly were attracted with at least 10 year tax holidays we will always remain short on receipts.

 

[Fawadqasim1]

Digging for more, oil, gas , gold , uranium, copper etc and selling for profit. Increasing tourism, increasing manufacturing jobs, selling our education to foreign students, speeding up CPEC projects specially the train link etc etc.

Yes absolutely but it will take years and we need 26 billion dollars now in next few months.

 

[khansaheeb]

Yes absolutely but it will take years and we need 26 billion dollars now in next few months.

Borrowing money to pay borrowed money is the stupidest thing anyone can do. It's equivalent to financial prostitution and is haram. We need to stop becoming money worshipers , if the system isn't working then either we need to change it or change ourselves.

 

[niaz]

The ground reality is that Pakistan is almost bankrupt and has no money to service her existing debt. Apparently, both the Saudis & the Chinese declined to help. Hence there is no alternative; beggars can’t be choosers.

It is by no means certain that IMF will approve the package. But it is badly needed else ability of Pakistan to import even dire necessities such as petroleum products & gas would become extremely difficult as the sellers would probably ask for payment in advance.

 

[Path-Finder]

https://twitter.com/x/status/1050086141456715776

 

[Menace2Society]

Borrowing money to pay borrowed money is the stupidest thing anyone can do. It's equivalent to financial prostitution and is haram. We need to stop becoming money worshipers , if the system isn't working then either we need to change it or change ourselves.

Its not money worship its the opposite, its absolute stupidity.