What an alcoholic needs is a bar to breathe, and what a bartender wants is for the alcoholic to be on the floor, just so those continuous stream of Tequila shots could keep those depressed spirits alive. Similar is the relationship between Pakistan’s Finance Ministry and the IMF. Whenever Pakistan is running out of foreign reserves to meet its imports demand, it knocks on the doors of the lender of last resort. And this has become a ritual; yet not much has been done to fix the roots of economic problems.
This time around the extended facility has been obtained to meet the payments of last IMF programme. The move has been called ‘home grown’ strategy (Yeah Right!), and all the fingers have been pointed towards the previous regime for not fulfilling the conditions and commitments.
Isn’t it a déjà-vu? In 2008, when Pakistan entered the IMF programme under Shaukat Tarin’s management, the PPP-led government made Shaukat Aziz’s government responsible for the mess. It’s about time for Pakistani politicians to stop this passing-the-buck game and initiate meaningful structural economic reforms to pull the country out of the abyss.
These reforms are imperative to run an independent foreign policy and improve trade ties with the neighbours. The political hegemony of favouring the allies by issuing SRO has to come to a halt. This addiction of SROs is the biggest impediment to instill any reform and to do away with culture of rent seeking.
Be it a military dictator, or any of the two leading democratic political parties at the helm, SROs are the most useful tool to facilitate cronies and creates hurdles in the path of Smith’s invisible hand to do its economic wonders.
Without political will there is no way to manage the fiscal affairs independently. The situation on ground is better now than in the previous regime. As in the last government economic decisions came from the presidency, while economists at the helm of Ministry of Finance were handicapped. On the flipside, Dar has inroads in the PML-N and has confidence of Nawaz to take decisions on his own.
That is a big plus and this come over and above the fact that the Planning Commission has Ahsan Iqbal at its helms. All these leaders need seasoned economists to advise and guide them to run right economic policies. With the leading party ruling the biggest province, it’s easier to have a consolidated fiscal policy.
Now with more resources are allocated to the provinces, better ties between the federation and the federating units is imperative. And the IMF is cognizant of this fact which is why the fund is emphasizing on the need of improving the role of Council of Common Interest. There is a good chance that the inter-provincial harmony may be spelled out in on the conditions of new facility.
Getting back to the fund also means that the central bank may revert to tighten monetary policy stance. So don’t be surprised if there is a hike of 100 -150 basis points in the next policy review.
Then there is a historic trend of sharp currency adjustment at the time of entering a fund programme. It happened in 1998, 2008 and 2009 (the time Pakistan had availed a bridge finance facility). The rupee therefore can be expected to move in the band of 105-107 per USD in a couple of months.
The good omen is that other multilateral development lending agencies like World Bank, Asian Development Fund and others may initiate new infrastructure, governance and structural plans. By virtue of entering into a $5.3 billion IMF facility Pakistan may witness another $10 billion being poured in the coming three years.
In anticipation of that let’s raise a toast to Dar and company.
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