Just like there is a political divide in the country - either you are a PMLN supporter or of PTI; there is an economists' divide on whether to get into an IMF programme or not. Specialists on both sides of isles are patriots, and it is healthy to debate on such an important decision. And it has to be seen objectively by decision makers.
After the $6 billion package from the KSA, the need for a fresh Fund programme is not immediate. And if we double up the amount from other friends including China, UAE and Malaysia, we are good for 12 months.
The Finance minister has categorically said that this IMF programme would be the last one in the history of Pakistan. If that were true; do we still need it, despite the breather?
It is because the country needs external support for three years to count for at least, and subsequently the yield of promised reforms can take the country out of the rut.
In the time of reforms, we need excess buffer of foreign exchange reserves. If the dollars can come from elsewhere - then surely it means we can do with fewer dollars from the IMF - but completely shunning the IMF is a big call.
The fine point is that the country needs credibility to fetch concessional loans from IFIs, good rates from global capital market and sustained FDI to plug in the current account deficit. The most compelling argument for IMF programme is that it brings credibility to attain stability in the international market.
That said, it is borrowed credibility and must not be mistaken with sustained stability. Pakistan has been into 21 IMF programmes in the past 70 years; but unable to get out of the rut. "Insanity is doing the same thing over and over again and expecting a different result'. How can this IMF programme be expected to bring stability for good?
An IMF programme does not only come with economic conditions, but also has political strings attached. The environment today, in post Trump and post CPEC (read BRI) is different. There are fears that the US administration may use Pakistan IMF programme to undermine the BRI by criticizing CPEC.
This may imply that China may come up with more than a breather to take the IMF out of the equation. But even with all the money the ministry of finance may like to opt for an IMF programme. The unfortunate reality is that the Pakistan finance ministry does not have the capacity to handle macroeconomic challenges. And the DMG officers would rely on IMF, WB and likes to form policies.
The shocking fact is that there is no macroeconomic expert in Q Block while there are 26 PhDs economists working in Bangladesh’s finance ministry. Even at the time of CPEC signing, the Chinese had to rely on IMF numbers and evaluation reports, as the finance ministry was simply incapable.
The urgent need is to build capacity of the finance ministry by hiring economists rather than relying on monthly meetings of a battery of 'usual suspects' on the EAC. The lack of capacity at government level is visible from the poor negotiation on CPEC, various FTAs (including China), and most importantly in negotiations with the IMF.
For instance, in the last IMF programme, the then finance minister relied mainly on withholding taxes. Yes, the revenues jacked up but at the cost of documentation, the informal economy grew disproportionately in the process.
The successive IMF programmes in the past 30 years or so have opened up Pakistan economy too much which has resulted in increased reliance on imports. The countries that have excelled in past two to three decades have done so without the IMF. They have gained credibility and attained stability based on domestically run reforms – the likes of India, Malaysia and Turkey are a few names.
On the flipside, the habitual IMF borrowers such as Pakistan, Egypt and Argentina never moved up the ladder. The IMF credibility is borrowed, not independent. And there is no way to have sustained FDI without gaining independent credibility. That requires political will and more importantly, capacity building in requisite government departments.
The bottom line is that there are arguments for and against an IMF programme. The government has already asked the Fund for a formal programme. The strategy should be to get support from other friendly countries. Once done, the government should defer the IMF programme for six months. Work rigorously on reducing twin deficits and concurrently build capacity at ministry of finance.
If that is done, the world will see a home-based reform agenda to gain true independent creditability. And then the whole argument of IMF being imperative will vanish. If the government fails, IMF will be there as a lender of last resort. It's worth a try!
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