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Valuable time is being lost as the government decides what direction to take to address a deteriorating balance-of-payments situation. When the PTI came to power, Finance Minister Asad Umar asked the country to wait until the end of September before a firm policy direction, including on what to do about the declining foreign exchange reserves, could be announced.
In public remarks made on various TV channels over the past few days, he now says he needs another 10 days to explore all options to the full. He argues that consultations are under way with the IMF these days that could easily lead to talks for a bailout, while requests for assistance from the Saudis are pending. A visit to China is scheduled to begin within days where another request for assistance will be tabled. Once the outcome of all these contacts is known, he will be in a position to recommend a course of action to the prime minister.
The real barbs will fly when the measures outlined in the finance act need to be supplemented further.
That in itself is not a problem. The situation at the moment is not so serious that another 10 days would be an unaffordable delay. The problem is the nature of the options that they seem to be exploring: bilateral assistance such as an oil facility from the Saudis and further balance-of-payments support borrowing from the Chinese. The target they have to reach for the entire fiscal year is $27bn, if projections contained in the last IMF report issued in March are to be believed. Of this, something like $15bn already appears to be in the pipeline, leaving a hole of approximately $12bn.
It is possible to build an arrangement whereby a portion of this money comes from bilateral sources like the kingdom and China, and the remainder from the IMF. The question now is how much will come from where, which is what the finance minister says he is working on.
This becomes a problem if the process of getting other parties to agree to a bilateral ‘soft loan’ of some sort ends up taking forever. In a situation like this, it is easy for the answer to always appear to be around the corner. The talks with the Saudis, for example, do not appear to be yielding the kind of stellar, historic results we were being led to believe were coming. An oil facility of some sort may well appear, but it is highly unlikely that it will be of substantial size (meaning enough to cover even half of our crude oil imports for a year).
The whole attempt to bring the kingdom into CPEC appears to be stillborn. It didn’t make sense from the beginning. What exactly does coming into CPEC mean? In the Chinese context it means access to specific lending windows under the Silk Road Fund. So when the government announces that any given country has agreed to join CPEC, are they implying that entities from that country will now be able to access resources from the Silk Road Fund?
Obviously not. Here is what I believe happened: they went to Saudi Arabia asking for a bailout and when they did not get any commitment, they moved to Plan B, which was asking the Saudis to agree to invest something in Pakistan. To sell Plan B they invoked CPEC, dangled Gwadar and a few other projects, including oil exploration and Reko Diq copper and gold mines. To this the Saudis agreed and sent a delegation, which has been inspecting the various options on offer.
Of course, none of this is going to help with the balance of payments, so it is an entirely different conversation from the bailout. And now we hear that further visits are planned later in the month, with some eager party folk floating the idea that the crown prince himself might make a visit.
So by when are these consultations going to end, and by when will we have a government firmly in the saddle? Even up till now, members of this government continue talking as if they are the opposition, and one wonders when the transition will happen to being a ruling party. Witness Planning Minister Khusro Bakhtiar’s press conference, sitting next to Information Minister Fawad Chaudhry, for example.
At the heart of that transition, from opposition to ruling party, will be the fiscal and external-sector adjustments for which we still do not have a road map. On the day of writing this, Asad Umar has traded barbs with the opposition while steering the finance bill through parliament. Some of the barbs were quite witty, such as the one about the lion shrinking to the size of a cat. But the real barbs will fly when the measures outlined in the finance act need to be supplemented further.
This is a near inevitability. Many of the things they are relying on, such as serving notices on those who are seen spending extravagantly while not filing tax returns, are steps that have already been tried. They don’t work as revenue measures because they take a while to work their way through. But they form good enforcement actions to buttress the tax machinery and encourage people to file returns.
Further adjustments will also become necessary because a vicious circle can be created if reform is delayed. Another round of currency depreciation is a near certainty at this stage, for example, which raises the cost of imported oil and external debt service, which places a greater burden on fiscal resources.
So yes, there is time in which to contemplate alternatives, but the alternatives being explored at the moment are a far cry, and delay carries costs. It is high time that the government woke up to the fact that they are in power, and the time to taunt others for not delivering is long past. It is now their turn to perform and deliver, and the sooner they start the better off we will all be.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, October 4th , 2018
