A press statement issued by the International Monetary Fund on 24th November after meeting Pakistani authorities to conduct Article-IV consultations during November 9-19, 2011 has termed the current fiscal year challenging, with the current account balance turning into a deficit and, the security situation and global risk aversion restricting capital inflows into the country. The GDP growth rate is, however, projected to be at about 3.5 percent and inflation is likely to decline. According to the IMF statement, consultations revolved around the country's recent economic performance and the challenges ahead in the light of uncertainties in the global economic environment. Pakistani authorities assured the IMF of the government's resolve to strengthen macroeconomic policies and that they would "continue to pursue reforms to enhance medium-term growth prospects." Discussions were also centred on short-term measures to address vulnerabilities of the economy and it was specifically agreed to contain the budget deficit during FY12, adopt a cautious monetary policy and a responsive exchange rate that would contain inflation and protect Pakistan's international currency reserves. Besides, steps were discussed to lift economic growth to reduce poverty and raise living standards and employment, while assuring continued macroeconomic and financial sector stability. These included structural reforms to remove constraints to growth, especially in the energy sector, strengthening of public finances and improving debt management. Pakistan was also advised to continue improvement in the effectiveness of financial sector intermediation, broaden access to finance and reinforce financial sector stability. Pakistan was assured that the IMF remained committed to continuing close engagement with the country. The continuing close engagement with a country, however, should not be construed as a special arrangement or something unusual as the IMF is obliged to hold bilateral discussions with its members under the Article-IV of the IMF's Articles of Agreement almost every year. A staff team visits the country, collects economic and financial information and discusses with the country's officials the country's economic developments and policies. A staff report is then prepared which forms the basis for discussions in the Executive Board meeting and at the conclusion of discussion, the IMF Managing Director summarises the observations of the Board which is transmitted to the country's authorities. It needs to be especially highlighted, particularly in our context, that when the country is not implementing an IMF programme and getting its assistance, its recommendations are not mandatory but only a kind of prognosis and a set of policy advice to improve the country's economy. Whether the IMF suggestions are actually followed or ignored is a country's own choice. Looking closely at the IMF's present press release on Pakistan, there are at least two factors which need to be especially noted. Firstly, the press release has been issued belatedly which may mean more in-depth discussions than usual and a consensus statement after getting the necessary input from both the sides. And secondly, it has been especially mentioned that authorities of the country have agreed to a set of policies on budget deficit, monetary policy, exchange rate etc. This shows that although nothing could be said with certainty at the moment, a door has been deliberately left open for the time being by both the parties to initiate negotiations on a fresh programme with the IMF. However, the nature of future relationship would become more clear after proper discussions on the economy in the Executive Board sometime in late January, 2012. So far as the contents of the press statement are concerned, there seems to be nothing extraordinary or unexpected. Vulnerabilities of economy as well as policy strategies and options are very well-known to all and sundry by now. For instance, there is absolutely no doubt that constraints to growth including energy supply shortages have to be removed and an active monetary and exchange rate policy has to be continued to contain inflation and improve the position in the external sector which, of late, has tended to deteriorate. However, the most important impediment to macroeconomic stability at present is the difficulty to contain the fiscal deficit within manageable limits by strengthening public finances through bold tax mobilisation efforts and improving the quality of expenditures. We are happy that the IMF has again highlighted all these issues forcefully but are not certain that the present government will be able to listen carefully and implement the advice of the IMF earnestly. It appears that political imperatives have so much dominated the scene that sane economic advice seems to be like an unwanted baby. Copyright Business Recorder, 2011
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