Finance Minister Muhammad Aurangzeb conceded at last on Wednesday what had become clear when the IMF had issued the agenda for its Board of Directors meeting at the end of the month: Pakistan’s case for an Extended Structural Adjustment Facility of $7 billion spread over 37 months was not up for approval in August, but could come up next month. The delay does not make any sense, except if the IMF wants to see the kind of relief that will be ordered for electricity consumers. There have already been rumblings from the World Bank against failure to extend Independent Power Producer contracts, especially as the contracts are at the stage where the IPPs merely sit back and count the capacity charges as they roll in, no matter if they provide any electricity or not. Otherwise, there seems no reason to delay the package, for Pakistan has fulfilled all the IMF’s requirements. Unless the IMF intends to shift the goalposts again, there seems no reason for the delay.
At a time when the Finance Ministry’s borrowing plan for 2024-2025 shows the need for Rs 32 trillion, including a State Bank of Pakistan requirement for $900 million to repay maturing IMF debt, the package becomes all the more necessary. Apart from the approval of the IMF loan, the plan will only succeed if there is a rollover of $7.9 billion in Chinese loans falling due, $4 billion in cash deposits and $3.9 billion in commercial loans, not to mention another $4.2 billion in trade financing. It is worth noting that the total requirement is about 26 percent of the GDP, which means that debt is far above sustainable levels.
With Rs 8.2 trillion needed for paying for deficit financing, it becomes clear that government attitudes have not changed. There is too much extravagance at the expense of the taxpayer still going on. It should be noted that while the expected fall in the interest rate, indicated by the T-Bill auction’s decline in yields, will help the deficit financing part of the borrowing plan, it will not eliminate it. Until the government realizes that its entire system of financing is unsound, meaningful reform will not be possible, and it will not be possible to drag the country out of the position it finds itself in. For too long, borrowing has been pursued because it is possible, with the borrower, either retired or out of office, or even dead, while a successor tried to square the circle by meeting the repayment of that debt. The lenders of the past cannot be absolved of blame, for those loans, which had political purposes were extended on the tacit understanding that they would not be repaid. However, that is no longer the case, and the demands for repayment are now used to make political demands. Perhaps that is the definition of the debt trap: political demands now no longer need to be accompanied by cash; merely putting off repayment (perhaps by a rollover) is enough.
