Turkey rejects the IMF – Pakistan may follow
IMF loans are a notorious double-edged sword for nations requiring urgent cash injections in order to avert a major economic collapse. While the IMF can provide short term assistance to nations with major current account deficits, the terms imposed on developing nations by the IMF tend to have a stifling effect on economic growth and domestic welfare initiatives. This is one of the reasons that Turkey’s pro-growth President Recep Tayyip Erdogan has explicitly ruled out seeking IMF assistance to plug the country’s current account deficit.
In spite of recent domestic inflation caused by a mixture of malicious western led monetary speculation against the Lira along with interest rates that for years remained favourable to heavy domestic borrowing (in line with Erdogan’s pro-growth formula), Turkey’s economy continues to grow and diversify in terms of both domestic sectors and in terms of procuring new dynamic trading partners (China in particular but also Russia). Because of this, Erdogan has made the decision to firm up his pro-trade and pro-growth policies rather than move to ease the current account deficit by taking moves that could stifle medium and long term growth.
While Pakistan’s economy is also growing, the current account deficit left by the previous PML-N government is staggeringly high. Under such circumstances most nations would be left with little choice but to go to the IMF for a loan. However, Pakistan’s Prime Minister Imran Khan has stated that he would only take out an IMF loan as a last resort. According to Imran,
“We may go to IMF for loan to handle the country’s financial issues. But, first we will try to get assistance from other countries as we have requested three countries to deposit money in Pakistan’s State Bank that would help boost national reserves”.
While the Prime Minister did not name any of the three countries that may render assistance to Pakistan’s economy, the potential candidates are easy enough to locate through educated speculation.
China’s robust economy has led Beijing to offer generous lines of credit, loans, investment and aid to developing economies throughout the world. As China seeks to sow prosperity throughout emerging markets in order to create win-win symbiotic relations that will ultimately allow the inflow of Chinese manufactured goods into developing nations which in turn will increase living standards in partner nations of China, it is clearly in Beijing’s interest to help its partners stay away from the IMF and its draconian loan practices.
As a consummate all-weather partner to neighbouring China, Pakistan is a strong candidate for Chinese financial assistance. Not only do the realities adumbrated above speak to a strong win-win outcome should China seek to render assistance to Pakistan, but because the China-Pakistan Economic Corridor (CPEC) represents the flagship megaproject of the first stage of the Belt and Road initiative, China would in reality also be investing in its own long term prosperity by ensuring that Pakistan’s economy remains solvent while fostering sustainable growth in Pakistan over the long term.
Therefore, it can be concluded that China is not only one of the three candidates but the primary candidate when it comes to a potential investment partner in order to resurrect Pakistan’s ebbing foreign reserves.
Oil and cash rich Saudi Arabia has also long been a partner of Pakistan. But while Riyadh was once viewed as the stronger side of an un-equal partnership, as Saudi Arabia seeks to diversify its own economy, Pakistan now offers Saudi Arabia many potential long term benefits including, a means to facilitate more connectivity to the Belt and Road initiative, a partnership for developing Pakistan’s domestic oil industry and the building of profitable infrastructural projects in a country that is geographically well placed to reap the advantages of post-American globalisation as the so-called zipper of Asia.
Because of this, it is in Riyadh’s interest to maintain the positive trajectory of relations with Pakistan, especially in light of Imran Khan’s recent successful visit to the Kingdom. At a time when Riyadh wants to modernise its partnership with Pakistan, helping Islamabad to avoid the IMF would help Saudi Arabia from going backwards in terms of its own aspirations in south Asia.
Over the past three years, Pakistan has demonstrated its willingness to go against the geopolitical wishes of its Saudi Arabian partner in three key areas. First of all, at a time when Saudi Arabia is attempting to lead Sunni majority Islamic nations against Iran, Sunni majority Pakistan has actually been engaging in an historic rapprochement with Tehran. Secondly, while Saudi Arabia had initially sought Pakistani assistance in its controversial war in Yemen, Pakistan has refrained from playing any active role in the conflict. Finally, Pakistan refused to join the Riyadh led boycott of Qatar and has instead maintained good relations with Doha.
As things stand, trade between Qatar and Pakistan has increased a whopping 104% in recent months. Unlike Turkey, a strong Qatari ally which openly rivals Saudi Arabia for influence in the Middle East, Pakistan has thus far managed to maintain good relations with both Riyadh and Doha and has played the role of a neutral south Asian partner to both Arab states. Therefore, while Turkey’s economic cooperation with Qatar has served to further alienate Saudi Arabia, due to the fact that Pakistan’s natural potential for generating wealth is eyed favourably by both Qatar and Saudi Arabia, Pakistan may well be in a position to temp both Arab rivals into a bidding war to see which can endear itself most closely with Pakistan at a time when Pakistan is in need of assistance, but simultaneously at a time when the interest of multiple GCC states in Pakistan’s economic future continues to grow.
While much of Pakistan’s media including commentators who would rather see the country fail than see Imran Khan succeed are forecasting a future of doom and gloom, Imran’s statement regarding alternatives to the IMF speaks volumes about the fact that multiple nations see Pakistan’s extremely high potential for future economic growth as an incentive to help and jump-start Pakistan’s economy. Such short term assistance will be the road to significant mutual dividends in the future for any potential investment partner.
If Imran Khan can indeed avoid the IMF and in the process secure and strengthen existing partnerships, he will have taken a seemingly hopeless situation and turned it into something that can seriously transform the country’s economic future for the better.