Pakistan Economy: IMF or no IMF, that is the question
Escalated CAD along with hefty debt repayments have led to an inflated gross external financing gap (US$20.42bn in FY18) as insufficient external inflows (US$14.35bn loans in FY18) pulled SBP FX reserves to US$9.79bn (down US$6.34bn during FY18). Looking ahead, a heightened CAD (US$17.8bn in FY19F) with additional drags from upcoming redemption of Eurobond and commercial borrowing repayments are likely to push gross external financing to US$22.44bn in FY19. In this regard, inadequate external inflows estimated at US$13.45bn (ex. bailout financing) should translate into a net shortfall of ~US$8.84bn by FY19-end (ex of budgeted short term loans & Eurobond net financing gap stands at US$15.34bn) which would strain FX reserves to unsustainable levels. Moreover, for recent policy makers, the path to possible remedies for the prevailing BoP shortfall include: i) approaching international debt market, ii) investments from non-residential Pakistanis, iii) Chinese bailout, iv) 'gifts' from friendly countries, and v) eventual IMF financing facility. With each mode of financing carrying inherent benefits and associated risks, in our view GoP hands are tied to another IMF financing facility along with accompanying caveats (with the sole purpose of improving on external vulnerabilities). While under an IMF facility, GoP could likely tap in other external avenues (bilateral facilities) as well as fetch better yields in international debt market to create a blend of financing to fil the external gap.
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