IMF means Minor Gain for Long Term Pain

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By Asad Rizvi

In response to Finance Minister Asad Umar’s urgent request for IMF loan made in Bali instead at its office, Christen Lagarde was also quick to respond back by telling FM that IMF would require absolute transparency on Pakistan’s debts, including those owned by China. 

This is a clear and direct message conveyed to the Pakistani Finance Minister by the IMF Managing Director herself that loan talks will only be held after meeting certain conditions. She gave early signal that IMF lending consideration will be the next step.

It means that prior to considering loan request, Pakistan will be required to disclose all financial agreements, documentations and contracts with their respective counterparties and all recorded/registered book entries, more importantly those owed to China.

What does this mean? This means they first want to perform “Due Diligence”, to do extensive audit of all entries to confirm the transaction details by reviewing the financial records.

It is a known fact that the previous government during or near the end of its term (12-18 months) or so, to meet its obligations and to attain higher levels of foreign exchange reserves, kept on focusing on Short Term (S/T) to Medium Term loans through rollovers or fresh borrowings, which is from risk perspective the most convenient way to borrow. Most of the Short term borrowings are from China.

IMF has clearly said that the key areas of interest for IMF are deals with China. It wants to dig deep to know the CPEC related risk profile and the type of risks and commitment involved.

Tracking down the funding details of short term to medium term borrowing is the easiest job, which can be reconciled by going through SBP’s daily foreign currency statement/reporting or by checking real time transactions in the Nostro accounts (both have same meaning) of last 2-3 years to match each and every debit & credit entry. But this is not IMF’s actual target.

The objective is to know the actual size of borrowings and the terms and conditions of lending, which is laid down in the agreement. This can easily be known after matching both the receivables and spending entries and going through the contract.

The real worrisome factor that matters is that what is Pakistan’s understanding with China? Is it permissible to show the details of transaction to IMF? Or according to the agreed draft, it is a secret agreement between the two countries?

Recently there were report published in various Pakistani newspapers regarding LNG deal with Qatar and as per reports there is a secret clauses inserted in the agreement that details of transaction will not to be made public. 

I am not sure if this is true or not and if true then if same law is applied to Chinese deals/borrowings.

If it is under any obligation due to past government commitment not to discuss detail of transaction then it testing time for Pakistan to chose its fate. Pakistan is already exposed to quite a few.

Pakistan’s relationship with China has always remained special and extraordinary, as both the countries have maintained exceptional level of trust and understanding. Prime Minister Imran Khan will soon be visiting China, which is probably at the most crucial time.   

PM has to keep in mind that despite our historical relationship, recent visit to Gulf countries by the Pakistani PM has not been very encouraging and it would not be wrong to say “disappointment” unless something unusually good happens all of a sudden. In simple words it was not productive from Pakistan’s point of view. Probably visitors were short of financial plan and ideas and had nothing in hand to offer or could discuss.

China’s visit is crucial and the timing is too tricky. But there is a ray of hope that Pakistan can avoid bad patch and get out of the trap.

CONCLUSION (Only Choice for PM Imran Khan)

The Pakistani PM should carry along with him a financial plan to discuss and inform about the possibility of a Swap Deal with his Chinese counterpart and that he has no other choice, but to approach IMF, if China does not agree to his SWAP Product offer. Pakistan can still avoid IMF if China can agree to invest $ 10 Billion in 12-months in Treasury Bills and $ 15 Billion in 3,5,10,20 and 30 years in Pakistan Investment Bonds and at the same time offer them Rupee Hedge against the foreign currency exposure that it will carry. Amount can be negotiated.

This is the only product and last option that Pakistan can offer to China or to its friends, which is a common practice all over the globe and this is not begging for money. PM has to take the lead to explain the need and urgency of the transaction. Or else, Pakistani nation should be ready for tougher IMF conditions, as approaching IMF 21st time means, Pakistan has once again decided to opt for Short Term Gain that will cause more Pain in Long Term.

(In Thousands of SDRs)  (SOURCE IMF-Borrowing History)

FacilityDate of ArrangementExpiration DateAmount AgreedAmount DrawnAmount Outstanding

Extended Fund Facility  Sep 04, 2013  Sep 30, 20164,393,0004,320,0004,320,000Standby Arrangement  Nov 24, 2008  Sep 30, 20117,235,9004,936,0350Extended Credit Facility  Dec 06, 2001  Dec 05, 20041,033,700861,4200Standby Arrangement  Nov 29, 2000  Sep 30, 2001465,000465,0000Extended Credit Facility  Oct 20, 1997  Oct 19, 2000682,380265,3700Extended Fund Facility  Oct 20, 1997  Oct 19, 2000454,920113,7400Standby Arrangement  Dec 13, 1995  Sep 30, 1997562,590294,6900Extended Credit Facility  Feb 22, 1994  Dec 13, 1995606,600172,2000Extended Fund Facility  Feb 22, 1994  Dec 04, 1995379,100123,2000Standby Arrangement  Sep 16, 1993  Feb 22, 1994265,40088,0000Structural Adjustment Facility Commitment  Dec 28, 1988  Dec 27, 1991382,410382,4100Standby Arrangement  Dec 28, 1988  Nov 30, 1990273,150194,4800Extended Fund Facility  Dec 02, 1981  Nov 23, 1983919,000730,0000Extended Fund Facility  Nov 24, 1980  Dec 01, 19811,268,000349,0000Standby Arrangement  Mar 09, 1977  Mar 08, 197880,00080,0000Standby Arrangement  Nov 11, 1974  Nov 10, 197575,00075,0000Standby Arrangement  Aug 11, 1973  Aug 10, 197475,00075,0000Standby Arrangement  May 18, 1972  May 17, 1973100,00084,0000Standby Arrangement  Oct 17, 1968  Oct 16, 196975,00075,0000Standby Arrangement  Mar 16, 1965  Mar 15, 196637,50037,5000Standby Arrangement  Dec 08, 1958  Sep 22, 195925,00000Total19,388,65013,722,0454,