Roving Periscope: As Pak economy sinks further, India, France & Japan to help Sri Lanka
Virendra Pandit
New Delhi: While the International Monetary Fund (IMF) has slashed Pakistan’s growth rate to 0.5 percent this year amid extremely high inflation, growing unemployment, and polycrises, India, France, and Japan are set to restructure Sri Lanka’s debts, the media reported on Wednesday.
In its latest forecast, the IMF lowered Pakistan’s economic growth rate from 2 percent to a meager 0.5 percent for the current fiscal year. This showed an unambiguous deterioration of Islamabad’s economic fundamentals since October 2022 when the global lender had downgraded its GDP growth by 3.5 percent against 6 percent for 2022-23 and inflation at 20 percent against 12.1 percent.
This downward revision in Pakistan’s growth prospects is in line with a similar 0.4 percent and 0.6 percent projected last week by the World Bank and the Asian Development Bank, respectively. They also projected inflation at 29.5 percent and 27.5 percent respectively for the current year, the Dawn newspaper reported on Wednesday.
In its flagship World Economic Outlook (WEO), the IMF also estimated the unemployment rate in Pakistan to rise to 7 percent against 6.2 percent last year. For fiscal 2024, however, it expected the economic growth to improve to 3.5 percent, inflation to stay elevated at 22 percent and the unemployment rate to slightly decline to 6.8 percent.
At the cost of loss of growth, elevated inflation, and higher unemployment, the current account deficit (CAD), according to the WEO, would decline to 2.3 percent of GDP during this fiscal year from 4.6 percent a year ago and slightly go up to 2.4 percent next year.
The IMF’s CAD forecast is 20 basis points lower than its earlier estimate of 2.5 percent, which had been one of the key bones of contention between the Pakistan authorities and the IMF mission in reaching a staff-level agreement in February.
While Pakistan is still waiting for an IMF bailout, Indian Finance Minister Nirmala Sitharaman will join her Japanese counterpart and French officials in Washington for Sri Lanka’s debt restructuring negotiating process.
“Japan, India, and France on Thursday will hold a press briefing on the margins of the Spring meetings to announce the launch of the debt restructuring negotiations process on Sri Lanka,” IMF said on Tuesday, quoting a Japanese Finance Ministry statement.
The three creditor countries have been working closely for a coordinated debt restructuring for Sri Lanka, the statement said.
Japanese finance minister Shunichi Suzuki and France’s Director-General of the Treasury Emmanuel Moulin will join Sitharaman during the press briefing. Sri Lankan President Ranil Wickremesinghe and State Finance Minister Shehan Semasinghe will also join the live streaming in person.
The Washington-based global lender had made Sri Lanka’s debt restructuring a prerequisite for granting the USD 2.9 billion bailout.
The IMF’s Executive Board approved a 48-month arrangement under its Extended Fund Facility (EFF) with an amount of SDR 2.286 billion (about USD 3 billion) to Sri Lanka following financing assurances from the creditors.
Sri Lanka, which drew its first tranche of the USD 3 billion bailout program, has already met an installment to pay back an Indian line of credit that the island nation obtained just before announcing the debt default in April 2022.
President Wickremesinghe, also the island nation’s finance minister, who spearheaded the IMF negotiations, specially mentioned the contributions made by Sitharaman to assist his government with the IMF for the bailout.
The IMF bailout, the 17th in Sri Lanka’s history, was approved following prolonged discussions over Colombo’s unsustainable debt.
Sri Lanka was hit by an unprecedented financial crisis early in 2022, the worst since its independence from Britain in 1948, because of a severe paucity of foreign exchange reserves, sparking a prominent political and humanitarian crisis in the island nation.
