After the approval of the IMF Board of Pakistan’s request for a 37-month Extended Fund Facility, there were strong voices from the Prime and Finance Ministers that this would be the last program with the IMF. We have heard such pronouncements before, but they have not been translated into action. A broad consensus is emerging that it is in Pakistan’s best interests to exit to regain control over economic decision-making, set its priorities and their phasing, timing and sequencing, and get out of a straitjacket framework of short-term performance criteria.
How can we ensure that this rhetoric is turned into a reality? Is this doable? Yes. Is this feasible? It depends on the gumption, courage, and persistence of those at the helm of affairs. However, there are some complicated prerequisites for this strategy to be successful.
First, the present political polarization has to give way to an agreed economic agenda by all political parties pledging their support for its implementation, whether in the government or the Opposition. This would add credibility to the policy actions. Second, the present law and order situation and the acts of terrorism in Balochistan and Khyber Pakhtunkhwa have to be brought to the peaceful situation that prevailed after 2014. The unending spate of attacks on Chinese business partners does not inspire confidence among the investors. Third, the incumbent government has to pursue the reforms steadily and uninterruptedly, not giving up in light of pressure tactics exerted by their supporters, who will likely be adversely affected by these reforms. What is the probability of these prerequisites being achieved? We better forget that we can tread this path if the likelihood is low.
Assuming, for the sake of argument and with the blessings of Almighty Allah, we can meet these preconditions, what concrete measures should we undertake to fulfill our stated goal?
The compelling reason for approaching the Fund and other creditors is to fill in the external financing gap of $25 billion resulting from the current account deficit and repayments of principal amounts.
So, the main goal of this exit strategy ought to be to take action in the next three years so that by FY28, we can meet our obligations without recourse to excessive borrowing.
Therefore, we must work systematically to enhance the capacity to generate additional net foreign exchange earnings compared to the current levels. Pakistan registered a negligible current account deficit in FY24 and less than 1 percent in the last four years, except in 2022. The objective is to turn it into a $6-9bn surplus by FY28.
Exports of goods recorded a 14pc growth rate of merchandise exports in August (In FY22, the increase was 26pc). If this average rate of 14pc is maintained for the next four years, $50bn of exports can be earned by FY28.
The problems the exporters face, such as obtaining refunds, competitive energy prices, tax incentives, etc., are quickly resolved. The focus should shift from five traditional sectors to every exportable sector. The Export-Import Bank should begin providing supplier and buyer’s credit and pre-shipment and post-shipment finance to non-traditional and value-added sectors. IT exports, and other service exporters are provided reliable and fast connectivity, and the flow of skilled manpower is expanded.
The writer was Governor of the State Bank of Pakistan. He has also served as Dean of the IBA. Until recently, he held a cabinet position. He has also authored several books.
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