When Nawaz Sharif was elected premier of Pakistan in June 2013, the country’s economy was in a perilous state. Foreign exchange reserves had slipped to dangerously low levels over the previous 18 months and would continue to fall for months to come. Inflation was running at close to 10% while growth was on track to hit 3.7% in the 12 months to end-June 2013, down from 4.4% the previous year.
This was hardly virgin territory for the south Asian economy, victim of endless coups and military interventions and propped up for years by generous Chinese loans and US aid packages. Sharif, though, was determined to break Pakistan’s damagingly endless cycle of debt and deficit. A natural businessman, he set out to patch up relations with the one institution that could help Pakistan in its hour of need: the International Monetary Fund.
Fund executives in Washington were wary at first. Pakistan dodged a balance of payments crisis in 2008 after securing an $11bn loan from the IMF — only to see it suspended in 2012 after repeatedly missing economic and reform targets. The country needed help: that much was clear. But would yet another round of talks, possibly culminating in yet another bail-out loan, achieve anything?
Moreover, was Pakistan really capable of pushing through key reforms, notably privatising state assets, slashing subsidies and boosting tax revenues? Such measures would put the economy on a more even keel. But they would also alienate and anger the wealthy businessmen and army officials who earned the most and had the most to lose from any break from the status quo.
Both sides, however, overcame any initial doubt. Pakistan, simply put, needed the capital. Sharif was both a new broom and an old hand, having run the country from the premier’s office on two previous occasions, and he knew the IMF well.
Moreover, the Fund wanted to re-engage with Pakistan without giving the impression of appearing too keen. Pakistan’s external stock had risen as a result of a peaceful transition from one democratically elected government to another that involved no military intervention.
Détente in the end was quick and decisive. By the first week of September 2013, Sharif had secured signatures on a 36 month, $6.7bn programme designed, the Fund’s regional adviser Jeffrey Franks said, to “bring the fiscal deficit to a more sustainable level”. By end-August 2014, four tranches of the facilities had been disbursed, totalling $2.8bn.