x Abu Dhabi, UAEMonday 22 January 2018

No rush to help ease Pakistan's cash crisis

Country faces cold shoulder from allies as it fights to stave off bankruptcy amid crippling costs of battling militants in tribal areas.

ISLAMABAD // Pakistan's finance chief, Shaukat Tarin, has admitted that his government is fighting a tide of scepticism in its attempts to raise loans to stave off bankruptcy. Pakistan has barely enough foreign reserves to cover nine weeks of imports and is struggling to raise funds to avert a balance of payments crisis. Pakistan will receive an International Monetary Fund loan of US$7.6 billion (Dh28bn) aimed to bail out the US ally in the battle against al Qa'eda and the Taliban.

The government had been reluctant to go to the IMF, but had little choice once even close allies rebuffed its overtures for bilateral aid. Mr Tarin, a former banker who was drafted last month to restore some confidence in the ability of the ruling Pakistan People's Party (PPP) to manage the country's economy, said there were doubts over the government's ability to dig the country out of the financial crisis.

Burly and mustachioed, Mr Tarin is a gruff former Citibank manager who has taken charge of several banks and also served as chairman of the Karachi Stock Exchange. He said Pakistan's initial efforts to secure funds from China, the United States and Saudi Arabia were rebuffed because of "scepticism over how we were going to get out of this hole". He said Pakistan had still not managed to secure an agreement with Saudi Arabia over the deferment of oil payments.

However, he said that since Pakistan had agreed to seek IMF endorsement for its economic plan "everybody is feeling more confident that we will be able to overcome these difficulties". Mr Tarin, who is the de facto minister of finance, also said the reputation of Asif Ali Zardari, the president, who was at the centre of allegations surrounding government contracts worth millions of dollars, had been an issue.

But he claimed that Mr Zardari's performance since taking office had allayed the fears of international donors. "Since he has become president things have started moving quickly so that negates that perception issue against him," he added. The State Bank revealed this week that net foreign investment in Pakistan fell by nearly $500m to $1.1bn in the first four months of the financial year. Potential donors gathered in Abu Dhabi on Monday under the banner of the "Friends of Pakistan".

The official-level meeting did not result in loans being pledged and merely paved the way for pledges for help in structuring Pakistan's economy. The country is facing increasing lawlessness and insecurity as the military combats a Taliban insurgency in North West Frontier Province (NWFP) and the adjoining tribal areas. Mr Tarin said that the government had already taken measures to tackle inflation and had removed subsidies on fuel, food and utilities.

A planning commission has drawn up a proposed "macroeconomic stabilisation plan" to cut expenditure by slashing defence spending and subsidies and increasing tax revenue. Opposition parliamentarians fear the IMF will impose austerity measures that will hurt ordinary Pakistanis, two-thirds of whom live on $2 a day or less. Mr Tarin conceded that the package will affect all Pakistanis but that it included steps to protect the poor.

"We are tackling inflation which is a tax on everybody. We are working to get back to having a growing middle class with a low-interest environment. But first we have to destroy inflation," he said. He said that the IMF regime was much more favourable than the failed projects of the 1990s and that "Pakistan would be left to micromanage its own economy". Mr Tarin highlighted Pakistan's most pressing needs as developing an "integrated energy plan" making its agricultural and industrial sectors more competitive.

The finance chief also said a "significant" part of the annual $1bn bill owed by the US for Pakistan's support in counter-terrorism operations was outstanding. "There is a process of auditing and it is taking longer than it should," Mr Tarin said. He also apportioned some of the blame for the delay in payments on this month's US presidential elections. He said that the total cost to Pakistan for fighting terrorism was more than $8bn each year.

"There is a cost. We have 100,000 troops fighting this war. That takes hard cash. On top of that we are paying for a loss in investment because of the security situation. "If you take that into consideration the cost is much more than $8 billion," he added. Mr Tarin's chief job is to restore confidence in Pakistan's economy and halt "capital flight". The former banker, regarded by his colleagues as a no-nonsense operator, faces a stiff challenge as the government he has signed up to work for is bedevilled by a "credibility deficit".

"Our plans are absolutely on track," he said. "You will see we will have commitments and a flow of money. And I am sticking to that." iwilkinson@thenational.ae