IMF Delegation Visit to Pakistan

There is huge furor over IMF visit someone claiming government has decided to go for IMF bailout package or entering into another agreement with IMF. Where government is claiming they have not decided to avail IMF bailout package or not. The government is playing wait and see trying out other options to cover for import bills.

IMF delegation was here from 27^th September to 4^th October 2018, on the last day of visit shared their analysis with media. The main observations included the following:

1. Pakistan is facing significant economic challenges, with declining growth, high fiscal and current account deficits, and low levels of international reserves.
2. Recent policy measures are steps in the right direction, but not yet sufficient. Decisive policy action and significant external financing will be needed to stabilize the economy.
3. Once stabilization is beginning to take hold, increasing focus is warranted on critical reforms to foster sustained and inclusive growth and strengthen institutions.

The observations made by IMF are true and reflect the real picture of Pakistan’s Economy. It should be stirring for the present government that a third party endorsed that recent policy measures are steps in the direction, however at same time observed “but not yet sufficient”. This is also true, now what options present government have, it is a million dollar question.

There is always more than one option for every problem. Same is the case with the current economic condition of Pakistan the second options is always very expensive or require time constraints.

The government also took the best decision in current scenario, the energy sector “Gas” is going to in same pit as “Electricity” has. The circular debt now gone out of control and Gas sector circular started to raise its head. The government had no option but to increase price to control the circular debt, if it was not addressed it could have been another major source of leakage in national exchequer. This is temporary solution; the long term solution is again short term, medium term and long term. The shortest control measure has been taken however medium term solution is import of gas and long term plan is gas and crude oil exploration in all blocks of Pakistan.

The medium term will reduce the cost of production of Gas and the short term decision of increasing the price to compensate the high cost of procurement Gas can be reversed which has not happened in Pakistan in the past.

The current procurement of LNG is on higher side more than $ 11, if this price can be renegotiated or import of gas can be done through pipeline the cost will come down to approximately $ 5 to $ 6 almost cutting down to half of the price of LNG. The quantity will be good enough to cease the production of electricity on furnace oil so the straight saving of $ 2.4 to $ 2.8 billion to the national exchequer, this will not only give cushion to our foreign reserve but also reduce the trade deficit. The devaluation of Pak Rupee is almost contributing 53% to the trade deficit only by oil imports.

The Iran Pakistan gas pipeline cost from Gwadar to Iran border is just few hundred kilometers it can be constructed in 18 to 22 months, the estimated cost is around $ 1.8 billion so the payback period is less than one year. A project with such a short term payback period is a dream comes true.

The present government should consider this project at top priority basis this will address all the points in the IMF delegation observations within a maximum period of 2 years without any further pressure on economic indicators.

It will only take resolve from government to stand on international pressures.