After IMF, the next clock to start ticking on a massive govt decision could be on the circular debt

[ni8mare]

A SENSE of panic is evident in the markets as the government continues to issue vague signals about its plans for plugging the growing external sector deficit and arrest the accelerating slide of the foreign exchange reserves.

Monday saw an intensifying sell-off in the stock market that fell by 1,328 points, with most stocks hitting their lower locks, and accompanied by unusual movements in the currency markets as well.

Dealers and brokers pointed to Prime Minister Imran Khan’s statement that Pakistan may have to approach the IMF for a bailout.

The statement was vaguely worded, and couched in fiery talk of ending corruption and searching for looted wealth stashed abroad, which fed further anxiety in the markets about whether or not the government has a clear policy direction at the top.

Mr Khan talked about reaching out to overseas Pakistanis for help as well as locating and bringing back looted wealth stashed abroad as a panacea for the economy’s twin deficits throughout his campaign trail, as well as after coming to power.

But the markets are not comforted by this talk, because they know that such moves can never plug the deficits, and certainly not in the time required.

Then clarity arrived in what appeared to be a hurriedly crafted press release on Monday, which announced unequivocally that “the government has decided to approach the IMF for stabilisation and an economic recovery programme”.

This admission has been weeks in the making and the delay in the announcement may have contributed to market uncertainty.

Now that it is finally out, the markets will no doubt search for further clarity on the shape of the stabilisation programme that will emerge from the talks set to begin in Bali in a few days.

What needs no searching, however, is the immense pressure that has built up in government accounts at various points.

This past week also brought news of a report, for example, drafted by a panel of senators, many from the PTI, which concluded that the government had no choice but to enact a circular debt settlement of up to Rs400bn in order to keep the power sector running.

This may well be necessary, and the next clock to start ticking on a massive government decision could be on the circular debt.

The question is, how will the IMF see such an operation? Now that the government will be in programme talks with the Fund, its opinion on the use of government resources to settle power-sector arrears will be important.

And if the Fund demands in return that the bill be borne by consumers and not the government, there could well be a second bitter pill to swallow.

The delay in the decision has done no service to the government, and now speed is of the essence.

Published in Dawn, October 9th, 2018

@SunilM @Nilgiri @Novice09 @BHarwana

 

[El Sidd]

FTW

 

[Path-Finder]

Currency wars.

 

[maximuswarrior]

That's the million dollar question. After getting loans what will the new government do? Asad Umar needs to have a plan here. Getting new loans is no big deal. Generating revenue to repay outstanding debt is the main challenge.

 

[Baghial]

Borrowing money may solve 1 problem..
But the intrest on this loan.
There terms and conditions.
May well cripple us ..
And how will we repay this massive amount. .if only1% population is paying taxes...on buisness..
While the rest of nation is carring the burden of indirext taxes.. energy products.....electrixity....gas...prtrol...

Its not just to have a plan...mr asad umer...
This plan has to work100%....

 

[wali87]

Hope not another bad news. I m still having a hard time digesting the dollar hike.

 

[Sugarcane]

The disappointing thing about PTI is that despite knowing the economic situation (and criticizing it for 5 years) they didn't do homework to address the issues if they come in to power. It was clear even before election that next government will have to go to IMF, Gas and Electricity price increase has been delayed deliberately, and circular debt problem has been increased more than double. But instead of building their narrative accordingly, and taking hard decision at earliest when it was easier for them to defend it as that's what they inherited but they still look clueless, they way they are managing the affairs the proverb "100 jootay or 100 piaz khana" fit on them perfectly.

 

[maximuswarrior]

Perhaps we need to consider devaluing our currency to pay debt. No it is not the most elegant solution, but it has worked for many nations around the world. The lower currency valuation could make the products cheaper for export, which could jump start the economy and make debt repayment much easier.

We have seen it happen before with many nations crushed under debt or those that have defaulted.

Just have a good look at Iceland folks. This is a model we need to seriously look at. It is worth considering if this option works for Pakistan.

 

[AZ1]

The disappointing thing about PTI is that despite knowing the economic situation (and criticizing it for 5 years) they didn't do homework to address the issues if they come in to power. It was clear even before election that next government will have to go to IMF, Gas and Electricity price increase has been delayed deliberately, and circular debt problem has been increased more than double. But instead of building their narrative accordingly, and taking hard decision at earliest when it was easier for them to defend it as that's what they inherited but they still look clueless, they way they are managing the affairs the proverb "100 jootay or 100 piaz khana" fit on them perfectly.

You can't do homework base on assumption. This is what Imran khan said that he thought there is corruption but didn't know how much exactly. PMLN and PPP are the founder of corruption in Pakistan and now we are at the edge.

So don't know how PTI to be blamed they didn't make any new policies yet not 50 days past. May be they thought saudia will come and save but they asked to fight their fight at yemen in exchange whic Imran denied.

 

[Sugarcane]

You can't do homework base on assumption. This is what Imran khan said that he thought there is corruption but didn't know how much exactly. PMLN and PPP are the founder of corruption in Pakistan and now we are at the edge.

So don't know how PTI to be blamed they didn't make any new policies yet not 50 days past. May be they thought saudia will come and save but they asked to fight their fight at yemen in exchange whic Imran denied.

What assumption? Asad Umar was member of Finance committee, knew these facts, was criticizing the government for these things. If still they were clueless, the would have read news papers. How begging from KSA is not shameful but from IMF whose purpose is to give soft loan to countries struggling with reserves is shameful? Why they were so naïve to think that they will get money from KSA without making any compromises?

 

[AZ1]

What assumption? Asad Umar was member of Finance committee, knew these facts, was criticizing the government for these things. If still they were clueless, the would have read news papers. How begging from KSA is not shameful but from IMF whose purpose is to give soft loan to countries struggling with reserves is shameful? Why they were so naïve to think that they will get money from KSA without making any compromises?

Going to KSA for bailout package doesn't show you anything? They tried their best exploited any other option available for them to avoid going for IMF which shows pretty much their mind set what they were trying to do and with what extent. IMF was also an option which they took at the last after they couldn't get money from other options.

 

[Nilgiri]

A SENSE of panic is evident in the markets as the government continues to issue vague signals about its plans for plugging the growing external sector deficit and arrest the accelerating slide of the foreign exchange reserves.

Monday saw an intensifying sell-off in the stock market that fell by 1,328 points, with most stocks hitting their lower locks, and accompanied by unusual movements in the currency markets as well.

Dealers and brokers pointed to Prime Minister Imran Khan’s statement that Pakistan may have to approach the IMF for a bailout.

The statement was vaguely worded, and couched in fiery talk of ending corruption and searching for looted wealth stashed abroad, which fed further anxiety in the markets about whether or not the government has a clear policy direction at the top.

Mr Khan talked about reaching out to overseas Pakistanis for help as well as locating and bringing back looted wealth stashed abroad as a panacea for the economy’s twin deficits throughout his campaign trail, as well as after coming to power.

But the markets are not comforted by this talk, because they know that such moves can never plug the deficits, and certainly not in the time required.

Then clarity arrived in what appeared to be a hurriedly crafted press release on Monday, which announced unequivocally that “the government has decided to approach the IMF for stabilisation and an economic recovery programme”.

This admission has been weeks in the making and the delay in the announcement may have contributed to market uncertainty.

Now that it is finally out, the markets will no doubt search for further clarity on the shape of the stabilisation programme that will emerge from the talks set to begin in Bali in a few days.

What needs no searching, however, is the immense pressure that has built up in government accounts at various points.

This past week also brought news of a report, for example, drafted by a panel of senators, many from the PTI, which concluded that the government had no choice but to enact a circular debt settlement of up to Rs400bn in order to keep the power sector running.

This may well be necessary, and the next clock to start ticking on a massive government decision could be on the circular debt.

The question is, how will the IMF see such an operation? Now that the government will be in programme talks with the Fund, its opinion on the use of government resources to settle power-sector arrears will be important.

And if the Fund demands in return that the bill be borne by consumers and not the government, there could well be a second bitter pill to swallow.

The delay in the decision has done no service to the government, and now speed is of the essence.

Published in Dawn, October 9th, 2018

@SunilM @Nilgiri @Novice09 @BHarwana

IMF will be quite stringent on what its bailout can be used for...combined with basically giving appropriate (reform based) terms to ensure its paid back. Domestic "circular debt" payments, I don't think IMF will have a problem with as long as Pakistan takes remedial base reforms regarding recapitalisation and administration of such assets and their ability to operate more independently in the market (and thus contribute more effectively to tax revenue). Power is a fundamental capital resource (along with land and labour)...so there is much price elasticity to provide quick revenue returns, which I.K should immediately depute good officers to target/promote as needed (with expediency that IMF loan presses - a good thing). IMF only has issue with using their loan for international circular debt payment....but CPEC has not advanced to the stage inside Pakistan where thats an issue yet (we have yet to see what the sustained ROI is there....and it is much more long term debt to begin with...i.e China is not really ramping loan service/repayment in the short-mid term)....so I don't see that as a real issue either (some articles were making it out to be one prematurely imo).

This is overall a positive thing for Pakistan as it will largely be bitter medicine (somewhat anti-populist) needed for Pakistan in short to mid term. I.K has the political capital needed to achieve this too....i.e political instability is not an issue. I.K must focus on long term fiscal and economic health and sustainability as much as possible.

@Indus Pakistan @Oscar @farhan_9909 @Chinese-Dragon @Chak Bamu @django @ziaulislam @Major Sam

 

[SQ8]

IMF will be quite stringent on what its bailout can be used for...combined with basically give terms to ensure its paid back. Domestic "circular debt" payments, I don't think IMF will have a problem with as long as Pakistan takes remedial base reforms regarding recapitalisation and administration of such assets and their ability to operate more independently in the market (and thus contribute more effectively to tax revenue). Power is a fundamental capital resource (along with land and labour)...so there is much price elasticity to provide quick revenue returns, which I.K should immediately depute good officers to target/promote as needed (with expediency that IMF loan presses - a good thing). IMF only has issue with using their loan for international circular debt payment....but CPEC has not advanced to the stage inside Pakistan where thats an issue yet (we have yet to see what the sustained ROI is there....and it is much more long term debt to begin with...i.e China is not really ramping loan service/repayment in the short-mid term)....so I don't see that as a real issue either (some articles were making it out to be one prematurely imo).

This is overall a positive thing for Pakistan as it will largely be bitter medicine (somewhat anti-populist) needed for Pakistan in short to mid term. I.K has the political capital needed to achieve this too....i.e political instability is not an issue. I.K must focus on long term fiscal and economic health and sustainability as much as possible.

@Indus Pakistan @Oscar @farhan_9909 @Chinese-Dragon @Chak Bamu @django @ziaulislam @Major Sam

CPEC may not be due soon and the Chinese know the long game, but the bitter decisions needed to meet IMF standards will give an embattled IK lot of public backlash. Here military support is key otherwise it will be a banana government in less than a year.

 

[Nilgiri]

CPEC may not be due soon and the Chinese know the long game, but the bitter decisions needed to meet IMF standards will give an embattled IK lot of public backlash. Here military support is key otherwise it will be a banana government in less than a year.

It will be balancing act for sure. Let us see how he prioritises and targets the immediate issues.

 

[SQ8]

It will be balancing act for sure. Let us see how he prioritises and targets the immediate issues.

With an emotional and frankly outwardly impatient( I dont count apathy as patience) people, that is a very delicate balancing act to accomplish.