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IMF Representative On Pakistan Loan Talks


Teresa Daban Sanchez

Pakistan’s economy is in dire straits. Its main stock exchange plunged more than 3 percent this week amid a sudden interest rate increase, the depreciation of the Pakistani currency, the rupee, and other worries over the country’s economic health. Islamabad faces pressing macroeconomic challenges because of its low foreign currency reserves, high trade, budget, and current account deficits.

To address its financial woes, Islamabad is now discussing a bailout package with the International Monetary Fund (IMF). In an interview with Radio Mashaal, the IMF's representative in Pakistan, Teresa Daban Sanchez, weighed in on the talks with Islamabad.

RFE/RL: How much has Pakistan has requested? Will the IMF provide this amount?

Teresa Daban Sanchez: The government of Pakistan has approached the International Monetary Fund with a request for not only financial assistance but also for policy advice, which are part of the usual services that the IMF provides to its member countries. Remember that the IMF provides countries with financial assistance to support medium-term (three-year) economic programs.

We are now in the process of designing and calibrating such a program for Pakistan. At the time of designing the program, we look at factors such as the financial difficulties a country is facing, the financial support that country is getting from other sources, such as other donors or from accessing markets. When all this work is complete, then we will decide how much resources Pakistan could need from the fund. We are still in the earliest stages of this work.

RFE/RL: U.S. Secretary Of State Mike Pompeo has warned Pakistan against using IMF money to pay Chinese debts. Can such statements by U.S. officials influence whether Pakistan gets the loan?

Sanchez: It is true that the U.S. has the largest quota at the IMF. Its quota is around 17 percent of the total fund. However, the IMF is a multilateral institution. Decisions are based on consensus. The pressure on taxpayers needs to be explained. Remember that IMF member countries deposited their quota at the fund a long time ago -- at the time when the fund was created or at the time when that specific country joined the fund.

The operations of the fund are not financed with taxpayers’ money coming in every year. Under certain circumstances, any member country of the fund can borrow a portion of the fund’s money. Borrowing countries will need to restore the portion they took from the fund and pay some interest, as in the case of any loan.

Right now, Pakistan has placed a request for an IMF loan program. That request has been responded to. We are working on it. There has been no interference. We are going to continue working on using the same criteria and with the same methodology that we usually use for all countries, making sure that Pakistan has a good program that is best for the country -- a program that could help Pakistan to address its macroeconomic challenges.

RFE/RL: What conditions must Pakistan meet to acquire an IMF loan?

Sanchez: Let me clarify that this is not the way the IMF operates. We do not approach countries and tell them what to do in exchange of financial assistance. Our operations work as follows: Everything starts with a country, in this case Pakistan, in needs of conducting a macroeconomic stabilization. The situation may have derived from an external shock or from some domestic imbalances, like in the case of Pakistan. For instance, in Pakistan, the fiscal deficit has increased substantially in the last year and a half. The electricity sector is also in trouble due to a large circular debt.

The current account balance registers a large deficit, which is putting pressures on the ER (eds: currency exchange rate). All of these imbalances need to be addressed with the implementation of adjustment policies. The fund provides financial support to countries that need to conduct this type of adjustment, such as Pakistan. This is the focus of our operations: to support the implementation of the policies and reforms that Pakistan needs right now.

RFE/RL: How far along are the discussions with the Pakistani government? Can you give us a timeline of when the IMF would be able to finalize the loan program?

Sanchez: We have now a common understanding of the challenges ahead. We gathered data and have had thorough discussions. Now we have a clear understanding of where we want to go. So, we have achieved the first phase that is the diagnosis of the problems. We have also passed the phase of identifying goals.

Now we have to calibrate the different policy options and focus on the design of actions, which require attention to issues such as composition and sequencing. We are still holding discussions, which will continue in the coming weeks.

RFE/RL: Will the IMF loan package affect Pakistan’s mega-projects such as the China-Pakistan Economic Corridor? Are conditions set for Pakistan to limit work on such projects?

Sanchez: The IMF mandate is to advise countries on macroeconomic issues. We do not micromanage countries and tell them what investment and development projects they should carry out. However, we do assess these investments and projects to ensure that the borrowing decisions that support them are sustainable over the medium term. We assist countries to assess their medium-term financial liabilities at the government and private sector level, especially if they have external repercussions.

The goal is to ensure that countries can afford these liabilities in the future under different scenarios. Pakistan is borrowing from several sources to carry out its investment in infrastructure. From the World Bank, the Asian Development Bank, and from China. We take into consideration all of these borrowing operations in our work, on a routine basis. We do that all that time with all countries.

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