KARACHI: The national economy is either still in the red or not in danger, according to two of the nation’s financial managers, both past and present.
Ishaq Dar, the country’s finance minister, argued that the country’s performance criteria were appropriate and “complete” for the International Monetary Fund’s (IMF) ninth review, while Mr. Ismail insisted that the default risk wouldn’t diminish unless the Fund came to the table, in interviews with private media that were broadcast on Tuesday night.
Borrowers like Pakistan have been unsuccessful in getting the IMF to change the surcharges it applies on loans that are not returned soon. On Monday, the subject was reviewed by the executive board of the Fund and these middle- and lower-income countries, but no agreement was reached.
The surcharges, which the IMF estimates will cost affected borrowers $4 billion in addition to interest payments and fees from the start of the Covid-19 outbreak until the end of 2022, are something Pakistan, Argentina, and other borrowers want the IMF to remove or at least temporarily cancel.
Riyadh’s assistance
Moreover, the finance minister stated that Pakistan was looking to Saudi Arabia for financial assistance, including raising the present deferred oil payment facility provided by Riyadh to $2.4 billion annually.
“I have spoken with the Saudi finance minister about both matters (financial assistance and oil facilities), and things seem promising. They promised to help us, he said.
Although he said that the administration was in contact with Saudi authorities, he provided no timeline for the assistance.
Pakistan is once more in danger.
In the meantime, former finance minister Miftah Ismail claimed during a Geo News interview that the IMF was the lender of last resort and that when it joined the lending team, other lenders like the World Bank and Asian Development Bank agreed to lend to a country.
He cautioned the journalist Shahzeb Khanzada, “But if that connection with the IMF breaks or a programme is discontinued, then other loans stop as well, and after that you can’t save Pakistan.”
Earlier this month, Mr. Dar stated that the IMF could “not dictate” the government and that he was not concerned about the IMF team’s arrival for the ninth assessment.
Pakistan, according to Mr. Ismail, “has returned to risk, and the situation won’t improve until the IMF comes to the table.”
“When the IMF lends you money, it signifies that they are assisting you. We need to examine ourselves and ask why we previously went to the IMF before we can conclude that the Fund is unjust. It’s difficult to deal with the IMF, he remarked.
He emphasised that Pakistan needed to take certain steps in order to host the IMF mission, claiming that the country could only rely on cash from its neighbours for so long.
Additionally, Mr. Ismail stated that prior to being replaced by Mr. Dar, all financial agreements had been established.
“Qatar has pledged $3 billion, the UAE $2 billion, and Saudi Arabia $1 billion. IMF had been informed of this. The World Bank also provided us with a commitment while our negotiations with ADB were ongoing, but each of these agreements was conditional on the IMF programme. Mr. Ismail emphasised that Pakistan needed to make some difficult choices and cautioned that if the IMF didn’t arrive right away, none of this money would arrive.
He emphasised that it would be extremely difficult to prevent a default if the IMF didn’t arrive.
Surcharges
Surcharge fees were imposed by the IMF on nations who have substantial outstanding loans or have been in arrears for a long time. These fees are in addition to the normal loan and interest payments. According to the IMF, a loan amount greater than 187.5% of a country’s quota is considered “too excessive,” while a loan term longer than three years is considered “too long.”
Between 2018 and 2020, Pakistan paid an estimated $65 million in surcharges to the IMF, and from 2021 to 2030, it is anticipated to pay an additional $392 million.
Pakistan and other debtors want the Fund to stop charging surcharges altogether or at least temporarily. Advanced economies, like the United States, are against the proposed shift because they claim that altering the financing model in the middle of a financial crisis will have a negative impact.
An IMF official was quoted by the US media as saying that the board discussed possible policy adjustments during a routine review but was unable to come to a decision.
In general, opinions on changes to the surcharge policy remained divided, particularly those regarding the advantages of a temporary fee waiver, the spokeswoman added.
In the upcoming days, the IMF promised to provide a press release and a staff report with more information about the board’s discussions.
Surcharge expenses are higher than the agreed-upon interest payments on the loans for nations like Pakistan, which are already paying them.
In top to interest payments and principal amortisations, surcharges are also made, which raises the total amount of debt owed by the nation. One of the largest IMF borrower nations is Pakistan. Pakistan’s entire governmental debt as of 2020 was already 87 percent of GDP. Pakistan paid $14.6 billion in external debt service in cash in only 2020.
Big shareholders should reconsider their stance, according to Kevin Gallagher, director of Boston University’s Global Development Policy Centre, who spoke to Reuters.
The most critical time to change the IMF’s fundamentally faulty business model of taxing those who are most in need, according to Mr. Gallagher, is now.
But he noted that the IMF’s shareholders had not flatly rejected a review, which was significant. The fact that the largest stockholders “didn’t have enough strength to kill the idea” is one bright spot, he said.