The government is showing reluctance to negotiate a new programme with the IMF after its present arrangement with the global lending agency ends on September 30, 2011. Its hesitancy reveals its basic disposition towards a "greedy lender". Political expediency seems to have overtaken the country's short- and medium-term economic interests once again.
Last time it was during the period of the PML(Q)-led coalition government that ambitious politicians, guided by expediency rather than principle, caused a colossal harm to the country's economy. Now the situation is graver than it was prior to February 2008 general elections.
A serious deterioration in US-Pakistan relations following scathing, unprecedented public allegations by the White House and the top military officials against Pakistan has resulted in further blurring of the relationship between aid and politics. As a result, there appear to be direct consequences for the country's economy, particularly on the external front.
The latest update on the Pakistan-International Monetary Fund tells us that an IMF delegation is scheduled to arrive here anytime soon to hold Article IV consultations with government officials on economic development and policies. The mission will also interact with country's private sector and members of civil society. During its 10-day stay, the IMF staff team will collect economic and financial information and hold discussions. On return to headquarters, the staff would prepare a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, would summarise the views of the Executive Directors, and this summary would be transmitted to Pakistan. Following the receipt of the IMF summary, only then Pakistan will decide whether or not it should negotiate a new programme with the IMF. A decision to this effect took place mainly due to finance minister Dr Hafeez Shaikh's parleys with the IMF officials in Washington where he arrived last week to attend the IMF/World Bank meetings to explore how to help the country's economy get a push towards stabilisation.
Shaikh held meetings with some top IMF officials, including first deputy managing director David Lipton. He also met the World Bank officials and discussed with them co-operation in health, infrastructure and economic development.
It was heartening to note that a politically astute finance minister was telling the Fund officials that his country had not decided to abandon the Fund because, according to him, the country's dialogue with the IMF was an ongoing process in which Pakistani authorities were constantly reviewing the macroeconomic situation in the country and the positive developments that had taken place on the external sector.
He was also seen to have effectively dispelled the impression that the government was critically reviewing or revisiting its relationship with the Fund because of the upcoming general elections in the country. He also made it clear to the Fund that the government would make its best efforts to achieve the fiscal deficit target for FY 2011-12 and had no plan whatsoever to initiate any currency "note-printing" exercise, thereby stoking inflation and contributing to fiscal imbalances.
Shaikh also apprised the Fund officials of the steps that Pakistan had taken towards macroeconomic stability despite the challenges of a chronic energy crisis, a severe lack of foreign investment and a precarious law and order, mainly because of the country's leading role in the global war on terror.
What is, however, a serious cause of concern is his speech that he later delivered at the Pakistan embassy in the US capital before a select gathering. The minister has been quoted as saying that the country is looking towards exploring future ties with the Fund despite a decision not to take a loan. Whether his statement was a categorical declaration or only hinted at a strong possibility, we don't know yet.
Shaikh has also been quoted as saying that since Pakistan has not fulfilled some of the conditions of the current loan arrangement, and also because of an increase in its comfort level, Islamabad decided not to seek another loan. This development was contrary to the impression gathered by this newspaper through an exclusive report filed by its correspondent from the venue of the IMF/World Bank meetings.
Although, experts travelling with the finance minister contributed to strengthen this newspaper's impression by saying that Pakistan might seek a new loan arrangement later if it felt the need to do so, doubts about Pakistan's desire for another IMF loan remain there.
The outlook for FY 2011-12, however, does not look promising because of a variety of factors. First and foremost is the plight of cotton where the commodity's prices have already softened. This has led the country's economic managers to revise the GDP growth target for the current fiscal year from 4.2 percent to 3.5 percent as the floods in Sindh have caused a loss of 2.5 million cotton bales.
Moreover, world oil prices are likely to soar during the current fiscal year, badly impacting the country's trade balance. Since cotton plays a major role in exports, the export target for FY 2011-12 will not be achievable, thereby adding pressure on the current account and also worsen the fiscal deficit. In the absence of any financial arrangement, the country will be without any cushion to meet the challenges of a serious depletion of foreign reserves.
It is instructive to recall that weeks before he formally became President of Pakistan, Asif Zardari had rightly felt the need to negotiate an IMF programme to courageously confront the profound economic problems, particularly country's precarious balance of payment position. He was fully aware of the fact that the most expensive debt of Pakistan to the IMF carries an interest rate of less than 2.5 percent per year and the bulk is lent at 0.5 percent, well below the rate of return which domestic bondholders and investors in savings certificates demand from their government.
This newspaper urges the President to again courageously confront the economic situation. He is required to ask the government to prepare a plan which must envisage, among other things, an exemption from all those Fund conditions that require the government to seek political parties' consensus in the shape of the Parliament seal. This has happened in the case of the Reformed General Sales Tax. Not only had the Opposition parties, the government's coalition partners opposed its introduction tooth and nail.
Such conditions, one strongly believes, cannot be easily fulfilled in a nascent democracy. Even in the case of India, which claims to be the largest democracy in the world, the Dr Manmohan Singh-led government had to see the exit of a key coalition partner - the Communist Party of India (Marxist)-led Left Front - on the issue of a nuclear deal with the US.
Had it not been for the support of one of the main opposition parties, Samajwadi Party of Amar Singh, which immediately joined the government to support US-India Civil Nuclear Agreement and helped the Congress-led coalition to survive a vote of confidence, the deal between the two countries would not have materialised.
Although, the economic policy measures that constitute a condition for IMF disbursements aim to strengthen the economy and improve governance, it is generally seen as a greedy lender. Our fiscal managers, therefore, are required to articulate a strategy with the conviction of home-grown ownership, not IMF imposition. The possibility of an adverse balance of trade pressure on our current account needs to be cushioned. A well-designed programme around the growth strategy devised by the Planning Commission needs to be finalised and presented to multilateral agencies to assist in economic stabilisation.
One more point that needs a critical thought is that IMF officials have been quoted as saying that Pakistan does not meet the economic criteria that qualify a country for loan. In the past, US political support helped Pakistan make a comfortable arrangement with the international financial institutions but this year the Americans appear reluctant to provide that support. The Pakistanis have apparently been told that if they qualify for a loan on the basis of their economic performance, the Americans will not oppose it "but they will not go out of their way to bail out the country".
The point whether or not the US will go out of its way to bail the country out through another IMF loan or any other step, are now greatly subject to the Pakistan-US relationship dogged by the recent spate of allegations by Washington. How the efforts, made by the Pakistani authorities towards defusing tensions between the two allies in the war on terror, play out will force Pakistan to also go for policy reset accordingly, which might require the country to seek or not to seek US support for a Fund programme or abandon the thought of another IMF programme altogether, for politics seems to have clear precedence over everything else.
Comments
Comments are closed.