Crown Prince of Abu Dhabi, Sheikh Mohammad bin Zayed Al-Nahyan's day-long official visit to Islamabad reflects yet another successful economic diplomacy initiative by the government: 3 billion dollars to be parked in the State Bank of Pakistan for one year at the rate of 2.8 percent to support Pakistan's balance of payment; and a Joint Ministerial Commission scheduled to meet next month, to be led by the foreign ministers of the two countries, to chalk out a comprehensive investment roadmap and fast track approval of pending agreements and memoranda of understanding (MoUs). Reports indicate that discussions on deferred oil payment facility also took place and the total assistance agreed was around 6.2 billion dollars, including 3 billion dollars to be placed in the SBP, though details of the remaining 3.2 billion dollars were not shared with the public with speculation rife as to whether it reflected investment or deferred oil payment facility or an amalgam of the two.
Fawad Chaudhry, the Minister for Information, revealed that the Crown Prince was hunting in Pakistan for the previous three days, information that critics of the government have pounced upon by referring to it as yet another U-turn by Prime Minister Imran Khan who, while in opposition, left no opportunity to criticise previous administrations for allowing the UAE royalty to hunt houbara bustard in return for a few dollars. However, the scale and extent of the external financing needs of the country, estimated at around 11 billion dollars in the current year, excluding the 19 billion dollar current account deficit with foreign exchange reserves less than two months of imports, would have compelled any administration to change priorities.
Be that as it may, disturbingly, four and a half months after assuming power, the Khan administration has yet to announce its economic reform agenda though it has revealed that all task forces, established in critical sectors to identify problem areas and recommend solutions, have completed their assignments, though these recommendations have not been shared with other stakeholders or the general public. This has generated uncertainty in the market and accounts for a decline in the large-scale manufacturing growth rate in the current fiscal year (to less than 1 percent) in comparison to the year before at over 6 percent with a consequent impact on inflation and unemployment levels. The Consumer Price Index has risen to 6.05 percent and this in spite of the reduction in the international price of oil and products, due mainly to the increase in gas prices 42.6 percent, transport prices by 15.78 percent, train fares by over 56 percent and kerosene by 22.2 percent. Food prices have declined notably those of onion, potato, tomato, masoor, pulse gram, moong but cooking oil price rose due to a rise in the price of gas.
The sizeable assistance announced by Saudi Arabia (6 billion dollars) and the UAE is estimated at around 12.2 billion dollars with China expected to provide a short-term commercial loan of 2 billion dollars. Preliminary negotiations on deferred LNG payment facility have already taken place with Qatar and there is speculation that the Prime Minister would visit Doha shortly before a formal announcement is made.
While at first glance, assistance from these friendly countries would no doubt be sufficient to meet Pakistan's immediate external financing needs yet what has to be borne in mind is that the bulk of this assistance is repayable within one year, and even if it is rolled over for another year, the government needs to focus its attention on formulating and implementing a politically challenging domestic economic reform agenda to deal with the continued market uncertainty. That such an agenda would undoubtedly also meet the International Monetary Fund's conditions is an argument that stands to reason and may give the required nudge to the government to acquire a bailout package from the Fund that would in turn provide investors, local and foreign, with an additional comfort level that the reform agenda will not be derailed in the event of a decline in PTI government's popularity.