KARACHI: As an alternative to the International Monetary Fund’s (IMF) bailout program, Pakistani currency dealers have offered to arrange about $24 billion to shore up the country’s foreign exchange reserves for the next two years “in the larger interest of the country,” an official said on Friday.
Cash-strapped Pakistan is currently in talks with the IMF for the completion of the ninth review of the $7 billion bailout program signed in 2019. However, no progress has been made until now to reach a staff-level agreement, even as the government has implemented several harsh conditions to fulfill the lender’s requirements.
Pakistan desperately awaits the disbursement of $1.2 billion from the IMF under the loan program since it would boost the country’s low foreign exchange reserves which currently stand at $4.2 billion, barely enough to cover one month of imports.
The country’s currency dealers have offered to arrange the much-needed dollars in this context through a swap agreement with overseas and local Pakistanis to steer the economy out of the current crisis.
“We offered the government six months back to arrange $24-25 billion through outright purchases from Pakistanis at least for two years,” Malik Bostan, president of the Exchange Companies Association of Pakistan (ECAP), told Arab News on Friday.
Bostan said he repeated the offer during a recent meeting with the members of the Senate Standing Committee on Finance in Islamabad.
“The companies have offered to arrange funds of $1 billion per month for the government so that the country can get rid of the IMF program,” he said, adding that the exchange companies were already contributing $400 million per month to the interbank market.
Asked to further elaborate the plan, the ECAP president said currency dealers would approach overseas and local Pakistanis and offer currency swap agreement for the well-being of the country.
“Under the agreement, we will take loans for a certain agreed period and offer them the current exchange rate,” he explained. “They will benefit from the exchange rate fluctuations, and appreciation at the end of the contract term.”
Bostan said the idea to raise dollars for Pakistan was not new as a similar approach was adopted back in 1998 through which $10 billion were raised with the permission of then prime minister, Nawaz Sharif, and central bank governor, Muhammad Yaqub.
“We had toured Saudi Arabia, the United Arab Emirates, and the United States, and approached Pakistanis, and they had responded well,” he continued. “The country is still reaping the benefit of 1998 fundraising.”
The ECAP official said the exchange companies needed the government’s approval to implement the proposed financing arrangement which required direct dollar purchases from abroad and people at home.
While Bostan said the government’s nod will allow the country to get the much-needed funds, Pakistani economists termed the idea “unsustainable” and risky which could put the country back on the Financial Action Task Force’s (FATF) radar.
“The financing solution proposed by the exchange companies may provide short-term relief, but it is not a long-term solution and there is a risk of putting the country back on the FATF watch list,” Dr. Sajid Amin, deputy executive director at the Sustainable Development Policy Institute (SDPI), told Arab News. “The government must stick to the IMF program and complete the reforms that the country needs for its long-term survival.”
Amin said the current IMF program seemed “tough” but it was because the authorities had failed to implement structural reforms which were mutually agreed with the fund.
“We have been playing politics with the IMF program which has delayed the implementation of prior actions,” he continued.
Amin added the conditions seemed tough because of the implementation timeframe which was short.
Pakistan has approached the IMF 23 times in its history to get bailout programs but has only completed one of them.