DNA Edit: Fiscal imprudence - Pakistan will pay an economic price for backing terror

There is a price that has to be paid for running terror camps from home soil and sometimes, as now, it assumes economic hues.

In Pakistan, financial heads are rolling. The cash-strapped country’s efforts to secure a bailout from the IMF has cost its finance minister, central bank governor and top revenue official their jobs. Reason? The global lender has asked Islamabad to ensure financial discipline.

The sackings have come at a time when Pakistan is struggling to wriggle out of an economic crisis. Its fallen rupee has devalued about 34 per cent since 2017 and the finance minister was asked to step down amid vital bailout negotiations with the IMF.

Growth rate has weakened and inflation has soared. The reasons for the IMF’s ire is partly political. Tied to American apron strings, the world’s premier lender has to take Washington’s likes and dislikes into account. US under President Donald Trump has not shown the kind of leniency to Pakistan that former American presidents have.

He has repeatedly accused Pakistan of harbouring terror camps from its soil, using them against American interests. In between, several warnings have been issued to Islamabad to mend its ways. Neither is America too enthused with Pakistan allying itself too closely with China, which fancies itself as the next global superpower to rival the US. It is one thing to align closely with China, but the global purse strings continue to lie with the Americans.

The US secretary of state Mike Pompeo said there was no rationale “for IMF tax dollars to go to Chinese bond holders”, a none-too-subtle warning for aligning with Beijing against the Americans. The truth is even when the Imran Khan government took over last year, the country was precariously perched. The Pakistani rupee had sunk by over 20 percent owing to a balance of payment quagmire. It had touched 130 against the US Dollar, recovering to around 122, as Beijing agreed to give Islamabad a $2 billion loan.

During the previous calendar year, Pakistan stock exchange had gone from being Asia’s best performing market to the world’s worst while the stock exchange had hit the lowest point two weeks before the election. When the new government took over, Pakistan was faced with a current account deficit of $18 billion or 5.7 percent of the GDP.

The budget deficit had crossed Rs 2 trillion, while the government owed another trillion in circular debt. Given the magnitude of these numbers, Pakistan had few options, but to go to the IMF for another bailout package – the 13th for the country since the 1980s.

The problem does not end here. This month, Paris-based Financial Action Task Force (FATF) is due to meet and India has announced it will go all out to ask the global money laundering and terror finance watchdog to put Pakistan on a blacklist of countries that fail to meet international standards in stopping financial crime. At the moment, all odds seems stacked against Pakistan, which nonetheless has a history of coming out of sticky situations.