Eleventh-hour
negotiations between Pakistan and the International Monetary Fund (IMF) have
failed to unlock $1.1bn in crucial funds aimed at preventing the country from
going bankrupt.
A deepening
economic crisis has all but emptied Pakistan's foreign exchange reserves,
leaving it barely enough dollars to cover a month of imports and it is
struggling to service sky-high levels of foreign debt.
The IMF team,
which leaves Islamabad on Friday, said "considerable progress" had
been made after 10 days of talks.
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"Virtual
discussions will continue in the coming days," the head of the IMF mission
Nathan Porter said in a statement.
Although there
was no financial lifeboat, both sides tried to paint the meeting positively.
Pakistan's finance minister told a news conference the country had been given a
detailed roadmap. He talked of "painful but necessary" reforms - the
IMF wants to see action and commitments from Pakistan before it commits to
lending more money.
In January
annual inflation soared to over 27%, the highest it's been in Pakistan since
1975, and there are mounting fears for the economy in a pivotal election year.
This week the
rupee sank to a historic low of 275 to the dollar, down from 175 a year ago,
making it more expensive for Pakistan to buy and pay for things.
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The lack of
foreign currency is one of the most pressing of Pakistan's problems.
Factories like
Jubilee Textiles in Faisalabad, the industrial heartland of Pakistan, were shut
recently - not by the frequent power cuts that have dogged Pakistan for years,
but because they couldn't get hold of dollars to pay for the goods they need.
Jubilee's printing
machines have only just restarted after shutting last month. Piles of white
cotton sheets sat in iron tubs, covered by a light coat of brick dust, when the
BBC visited, with the only sound the drip, drip of an industrial washer.
Walking through
the network of frozen machines, Fahim said the factory had run out of the dyes
they imported from China, not because they weren't available, but because they
said their bank wouldn't clear the dollars to pay for them for weeks.
According to
analysts, the government had been holding the bank's exchange rate artificially
high behind the scenes which was contributing to the lack of dollars in the
system. At the end of last month, they allowed it to drop, which could help
some businesses, but also push prices up.
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Businesses and
industries across Pakistan said they have had to slow or stop work while they
also wait for goods they have imported that are currently stacking up in ports.
In late January,
a government minister told the BBC that there were more than 8,000 containers
piled up in Karachi's two ports, containing goods from medicine to food. Some
of that has started to clear, according to local media reports, but much is
still stuck.
A perfect storm of problems
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Pakistan, like
many countries, is suffering as a result of the coronavirus pandemic and
Russia's invasion of Ukraine, following which global fuel prices have soared.
Pakistan relies heavily on imported fossil fuels and importing food has also
become more expensive.
If the rupee
depreciates, fuel costs more, with knock-on effects for goods that are
transported or manufactured. The government recently increased fuel prices by
over 13% but says it's not planning any more.
Add to this the cost of last year's floods, which the UN says caused damage of more than $16bn. Huge areas of Pakistan were submerged, destroying farmland and disrupting its ability to produce food. Basics like wheat and onions have skyrocketed in price.
All this comes
in an uncertain and febrile political climate - an election is due by the end
of the year.
As for bailouts,
Pakistan is no stranger to them. The country - which has a massive military
budget and years of debt-driven infrastructure spending - has long failed to
wean itself off populist subsides and stabilise its economy.
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"If you see
the history of Pakistan, we have a cycle of balance of payments problems,"
says Dr Sajid Amin Javed, deputy executive director at the Sustainable
Development Policy Institute in Islamabad.
"We go to
the IMF. We implement very strict reforms, for two or three years, then it's an
election year and unfortunately, we reverse them all."
Subsidies have
long been used to woo voters in Pakistan, he says.
Is Pakistan the next Sri Lanka?
Imran Khan, who
was ousted as Pakistan's prime minister last April, came to power in 2018
promising to fix the economy. At the time he had vowed not to seek help from
the IMF, but inflation soared and the rupee dropped.
He ended up
negotiating a $6bn rescue bailout with the IMF to address the balance of
payments crisis.
The current
negotiations over the next $1.1bn tranche of this have repeatedly stalled. It
was originally due to be made in November.
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The government
and Mr Khan's party, the PTI, have had their own disagreements with the IMF in
the past, but with the country's foreign reserves now so low both agree
Pakistan needs to come to an agreement to secure the funds.
The negotiations
have been difficult, according to Pakistan; last week Prime Minister Shehbaz
Sharif said the organisation had given Pakistan's finance minister a tough
time.
In an interview
last month Mr Khan warned that Pakistan could follow in the footsteps of Sri
Lanka, which ran out of money to buy food, fuel and other essentials last year,
causing a popular uprising that unseated the president.
The
comparison doesn't hold for Dr Javed.
"The size
of the economy is absolutely different, number one," he says.
"Pakistan has always had good support from friendly countries, such as
China, UAE, Saudi Arabia - and in turbulent times that's come in the form of
rollovers, refinancing, friendly deposits and delayed oil repayments."
However, he does
have his concerns.
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"The common
ground that we do have is political instability and our ability to navigate
that will be crucial in coming out of this crisis."
The government
and Mr Khan's party, the PTI, have no love lost between them. Mr Khan, who
still has considerable support, has been holding rallies and marches, claiming
his removal from office under the constitution was unfair.
Pakistan's new
government says it won't accede to his demands for an early election and argues
it's putting the economy first.
"For one
person's personal interest we cannot put the whole country into limbo,"
planning minister Ahsan Iqbal told the BBC.
"Calling an
election at this time means there will be four to five months of
uncertainty."
That's one thing
both sides agree on: economic stability is difficult when there is no political
certainty, and while an election looms that is unlikely to happen.
The IMF holds
the key - for now
So, could the
situation get better for Pakistan? Put simply, the country needs more dollars
and it needs them soon, not least to keep the lights on.
As the weather
gets warmer and people use more electricity to power fans and air conditioning,
the need for energy will go up putting more strain on the system - and more
pressure on Pakistan's almost exhausted foreign reserves.
The question is,
how long would a bailout deal buy the country this time?
"If the IMF
programme resumption is successful, that also unlocks billions of dollars
promised by Saudi Arabia and the UAE. Then the risk of a larger balance of
payments problem will be pushed down the road," says Khurram Hussain, a
business and economic journalist in Pakistan.
But he adds:
"In the long term the programme will have little to no impact. Pakistan
faces a crushing debt burden. Without comprehensive debt restructuring, the
country will keep landing up back at this spot, at the edge of a balance of
payments crisis."
Trying to get a
deal could mean painful political promises, potentially including dropping
subsidies on energy.
Mr Hussain says
coming to a deal with the IMF will help the economy and the state, but at the
expense of normal people. However, he thinks that the biggest risk is that the
government comes to an agreement with the IMF, starts implementing the plans,
then changes its mind.
"If the
government gets cold feet and asks to halt the process of adjustment and tries
to renegotiate again, Pakistan will swivel back firmly into where it is facing
a balance of payments crisis."
By Caroline Davies || BBC News, Islamabad
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