The reaching of a staff-level agreement with the IMF was greeted with both a further rise in the KSE Index and a rise in the value of the rupee. The KSE index had been rising for some days, and was already at a record high, when it gained even more on Thursday to close at over 57,000 points for the first time in its history. The dollar, which had been falling for several previous sessions, rose Rs 0.76, following appreciation on Wednesday. There was a reason for the euphoria; the agreement was expected, because the IMF had not met any resistance from the government to any of its conditions, no matter how onerous. Previous programmes had run into trouble at the very first review, mainly because governments had jibbed at the conditions that were laid out by the IMF.
The release of the second tranche of $700 million, brings to $1.7 billion the total disbursement by the IMF, leaving $1.3 billion still to be disbursed. The review for its disbursement is likely to be among the first responsibilities of whatever government is elected on February 8. Then there is the stage of the next IMF programme, which is already being talked about. Indeed, the SBA was made in July, just before the dissolution of the previous National Assembly, and was envisaged as a sort of stopgap arrangement to cover the caretaker period. The staff-level agreement is important because it means that other multilateral and bilateral donors will be ready to lend Pakistan money with which it will service its foreign debt.
The parties which are contesting the coming election must focus on this, so that both voters and the IMF can learn what are their ‘red lines’, but more importantly, so that they can find out the gameplan of the parties for getting out of the debt trap. Foreign direct investment from Gulf countries through the Special Investment Facilitation Council will help, but it will not suffice. Crudely put, the country must sell to the world more than it buys from it, so that it can pay off the foreign loans it took. Then there is the separate but related problem of domestic debt. The government is no longer servicing that debt without borrowing from the banking system, and thus crowding out private credit. The reforms that will have to be made to achieve this require parties to make clear what demands they will place on the country. Only the PML(N) has established a manifesto committee, and even that has not met yet. The rest seem unconcerned.
