The IMF programme

The International Monetary Fund (IMF)-Pakistan relationship has a history of over 60 years, starting in 1958 with a loan agreement of $ 0.3 billion to the current 2019 loan of $ 6 billion with rollout of 22 agreements of which 12 were bailout packages, the biggest of which was in 2008 ($ 7.2bn). This means the nation has been in the IMF support every 3 years. This can be described as a constant factor in the fiscal and economic discipline of the country.
During these years the country was governed by military leadership three times; it was governed numerous times by civilian leadership of which PML-N and PPP have the distinction of enjoying the longest tenures followed by PML-Q. PTI, however, is a new entrant.
This bare fact in itself is a testament how fiscal discipline, will for self-dependence, pride as a nation and competence in state and economic governance stand exposed - government after government.
On the contrary, the nations, for whom the IMF/WB programme initially rolled out under the Marshall Plan, to spur economic revival of Western Europe after the World War II fully exploited the programme by building up their industry and infrastructuring and bid farewell to the IMF within a decade and positioned themselves as the leading economies of the world. Japan too, received aid and assistance under the Marshall Plan.
Thereafter, many emerging markets worldwide utilised IMF programmes and followed the same pattern. Today, there are very few takers of the IMF lending. It is this reality which all the political leaderships, legislators, economists, technocrats and state executives should recognise and sit back and conduct self accountability as a collective responsibility of failing the nation and its silent majority - years after years. The current bouts of endless debates in assemblies and media on IMF and pros and cons of its programme sounds meaningless and of no value to public when one looks at the larger picture to know how events have unfolded in the country in all these years.
The core of the current IMF programme cannot be and is not much different from the previous ones as the key issues remain unchanged: fiscal deficit, revenue shortfall, mounting loan burden, limited tax base, grey economy, subsidies to sustain dollar-rupee parity and the impact of electricity, gas and fuel on general public - all driven by vote politics and greed. The present IMF programme could be termed a bit different from the rest as no other IMF programme has received such heated debates in parliament and media.
There are apprehensions that this time IMF has imposed harsh conditionalities as never before. One can understand that this could relate to perpetual trust deficit on the part of the IMF that awarded many waivers in its last programme during the tenure of last PML-N government. Those waivers were particularly related to government's withdrawal from its commitment on the privatisation of loss-making public-sector enterprises at the fag end of its tenure.
The IMF this time appears to mean business; it seeks to ensure that its funds are utilised for the purpose they are meant for and conforming to well-defined milestones of reforms and restructuring.
And as events unfolded in the last two weeks, one can comprehend that the initial milestones, pending formal approval by the IMF board, include change of the economic team which could merit their trust, market driven dollar/rupee parity and a committed approach towards the FAFT challenge. The looming increase in utility tariffs is likely to happen soon. The IMF board's approval, therefore, appears to be round the corner.
Having now closed the deal with IMF the nation must brave it out for the next three years. Creating confusing, despondency and obstacles is against the interest of all stakeholders. One very well-recognised economist who spearheaded the nation's economy couple of times in the past is reported to have stated: "The IMF programme is going to be very tough and painful for Pakistan. The basic purpose of the IMF programme is to choke Pakistan's economy and restrict its GDP growth." He has predicted that the GDP growth will be restricted to 2 to 2.5 percent. "This is the game plan," according to him.
One can agree that the programme will be tough and painful for the nation. But it had been painful without the IMF Programme too. Since the last one year the electricity prices have increased by 12 percent, rupee against dollar has depreciated by 30 percent, inflation increased by 3.5 percent, KSE-100 index declined from 41,300 points to 33,971 points. With the IMF there is at least a good chance to arrest the slide and move to a growing trend.
Expecting a GDP growth of over 2 to 2.5 percent in the near future is, however, unrealistic as all GDP indicators are down. Large-Scale Manufacture (LSM) growth, the main revenue source, is negative, exports are flat while FDI intake is negative. On top of this the nation carries a burden of debt and liabilities to the tune of $ 90bn of which $14 billion is on account of the China Pakistan Economic Corridor (CPEC) loans. The next tranche of debt payment is round the corner. In addition to all of this, the government has to bear the burden of loss-making enterprises in the public sector and circular debt to the tune of over Rs 1.3 trillion.
The government's fiscal shortfall at present is $ 12bn of which $ 6bn will be sourced from the IMF and the rest from other sources. Today, the biggest issue is the loss of revenue generation and status quo in transactions and money circulation which is nothing more than businessmen's sentiments and perceptions.
The government is faced with humungous challenges that require astute competence to implement reforms and carry out restructuring at a very fast pace. Is the incumbent government ready to take on? Probably not. The government recently did manage to bridge the gaps in economic governance by installing a new leadership in finance at the centre but much more needs to be done in the other sectors as well. The window is open for 6 months to make things happen failing which the economy will again spin out of control.
(The writer is the former President of Overseas Investors Chamber of Commerce and Industry)