The deal

Much as the detractors might want to classify the deal as a Faustian Bargain, that it surely is not; it lacks a core ingredient, freedom to choose.
In Faust's case, he was greedy for knowledge; on the other hand, we are simply not interested in knowledge, we just want to wither the storm, until the next one comes knocking.
If we had ever been hungry for knowledge, we might just have learnt from our own experiences, and ensured, in very simple words, that history did not repeat itself over and over again, and that too, perfectly.
Please do not jump to conclusions, which unfortunately has become everybody' pet hobby in our extremely polarized political environment; the above was not politically motivated criticism directed at anyone, us not wanting to learn is evidenced by how we approach economic challenges.
The first step, once we fall of the fiscal cliff, is the blame game - everybody blames anybody with nobody ever accepting that they did it, except somebody had to have done it - because if nobody did it, why have we, considering the resources we are blessed with, failed so miserably on the economic front for the last 3 or 4 decades, if not forever.
Failure to be a developed nation in over 70 years is our failure.
The blame-game is almost immediately followed by the media circus, with the pundits blaming weak institutions and bad policy decisions for the debacle, and propagating the very same solution every time, which broadly revolves around improving GDP, increasing exports, selling State Owned Enterprises, fiscal discipline, autonomous central bank and eliminating subsidies on everything, while increasing spending on social welfare.
Improbable to do, if not impossible; and nobody explains the how.
The media noise followed by a period of uncertainty when we flirt with IMF, with everybody again blaming everybody else for the harsh conditions that accompany the IMF program, which almost always require reduction in fiscal deficit, privatizing SOEs, autonomous monetary policy, inclusive growth, eliminating subsidies and increasing forex reserves for paying debt.
And finally, as soon as the agreement is signed, we revert to our merry ways, approaching IMF for waivers from time to time, which are readily granted; until we are back to square one.
If we were really after knowledge, we would have strived to figure a way out to break the monotony, if nothing else.
More importantly, not wanting to be knowledgeable aside, we never had a choice; we needed the IMF more to enhance our ability to flirt with our other creditors for managing our external debt repayments, then for the money; okay we needed the money too.
According to IMF itself, the first 12 months of the program are to be financed by China, Saudi Arabia, UAE, the World Bank and the Asian Development Bank to the tune off US$ 16.4 billion.
Not clear who we borrow from after the first 12 months.
Nonetheless, a Faustian Bargain it definitely is not; but perhaps it is high time we got greedy about economic knowledge at least.
Primarily, because we are running out of time.
So what does the IMF EFF program require?
An autonomous State Bank of Pakistan committed to a flexible market determined exchange rate, while simultaneously maintaining an appropriately tight monetary policy and eliminating SBP financing of the budget deficit.
The finance ministry is required to raise tax-to-GDP ratio by 4-5% and bring down the primary deficit by 4.5% of GDP by 2023 and at the same time, ensure debt sustainability; in a nutshell, increase taxes significantly, reduce development budget substantially and pay your creditors on time.
An energy policy focused towards an adequate pricing structure reflective of costs, essentially by September 2019, and thereafter through legislation ensure that the government cannot interfere with market priced energy costs at all to provide any subsidy whatsoever; and energy includes electricity and gas.
Seven State-Owned Enterprises (SOEs) have to be privatised, albeit not clear which, and the rest to be sorted for sale, liquidation or retaining.
The only thing different with the above asks, from the last program, is not allowing to borrow in dollars to manage the currency exchange rate; notwithstanding that we probably do not have the capacity to borrow and defend the exchange rate anymore, one does wonder why was that not a condition last time around?
Nonetheless, an educated question to ask right about now would be, how all these steps will ensure economic stability in the short term, and durable growth in the long term; especially when durable growth has remained an elusive target despite multiple IMF programmes in the past.
Is it really different this time?
Essentially our biggest problem has been an out of control trade deficit and external debt.
In this regard, IMF also imposes another key condition, which everybody seems to be overlooking.
IMF wants the government to eliminate regulatory duty on imported intermediate, consumer and luxury goods, and also remove import restrictions for balance of payment purposes.
The good news is that we can all continue to party; the bad news is that the trade deficit is definitely not going away.
And how will we pay for it?
External debt is not going away either - all that IMF projections show is that the annual borrowing requirements will go down, and that too if we get the projected FDI, and worker's remittances keep increasing as envisaged.
What if workers' remittances are not US$ 27 billion in 2024?
The IMF Tables do not include projections for total national debt; but since we are projected to keep borrowing in dollars to meet the trade deficit, and to borrow from domestic banks at expensive rates since SBP won't lend to the government anymore, how does the debt trap go away?
How much more taxes can the government collect; blood from stone thing.
Most assuredly we need to get greedy about knowledge.
Even sans Mephistopheles, we need to carefully, in our own interest, understand the implications and impact of the deal.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])