In defence of IMF

The International Monetary Fund’s (IMF’s) firmness on its prior conditions in relation to levy of taxes and duties and the absolute autonomy of State Bank of Pakistan (SBP) seems to have prevailed, overriding persistent persuasion and reasoning advanced by the Finance Ministry in many rounds of their meetings in Pakistan and the US.

The red line is IMF’s and Ministry’s divergent interests on the two issues with one driven by rules of loan and the other by political compulsions. While the IMF’s interest is to ensure security of its loan and to steer the country’s economy based on long-term sustainable economic parameters, good governance and autonomy of regulatory bodies, the interest of the incumbent government is influenced more by compulsion of vote politics, although its professional economic managers in their wisdom fully understand that the conditions laid out by the IMF are as per its standard prescription to inject discipline into ailing economies. In the long run, IMF prescription shall undoubtedly work out in the best national interest.

The government, which is left with no alternative has capitulated to IMF conditions to ensure that Pakistan’s sixth review of the $6 billion Extended Fund Facility gets cleared by the IMF’s Executive Board.

The IMF conditions in relation to levy of taxes and duties and withdrawal of selective exemptions of general sales tax for a seemingly beleaguered government spells unpopularity in the masses with severe political consequences in the last leg of its tenure.

In a free economy, selective tax exemptions is considered discriminatory which defeat the long term benefits of a free economy. In Pakistan, much of the exemptions and subsidies have been applied to limit inflation and contain the prices of edibles and other basic commodities. Unfortunately, however, a substantial part of it has also been doled out to pressure groups out of political expediency and market failure.

The SBP amendment act met with stern resistance when tabled in both the houses of parliament. Not only has the opposition opposed it, some on the treasury benches are also voicing their apprehensions that the proposed State Bank autonomy bill would create a state within a state, and that it was tantamount to surrendering the country’s economic sovereignty.

These apprehensions are totally unfounded. The fact remains that State Bank of Pakistan is a legal entity which has been functioning under a framework and a law of Pakistan. It is also a fact that the successive governments have attempted to usurp the autonomy of all regulatory bodies of the country, overriding the autonomy granted to them under the constitution of Pakistan. Energy regulators NEPRA and OGRA have been rendered subservient to Ministry of Power and Ministry of Petroleum, respectively. The Securities and Exchange Commission of Pakistan (SECP) is subservient to Ministry of Finance.

The State Bank of Pakistan is no exception in this regard. Previous governments massively interfered in the affairs of the central bank and frequently resorted to rampant borrowing from it, which entailed unbridled printing of money and inflation. The finance ministry, in the past, had repeatedly manipulated the exchange rates and key discount rates on the basis of political compulsion and for optics and short-term gains which ushered in economic imbalances which in long term severely harmed country’s economy and fiscal discipline.

State Bank of Pakistan (SBP) was first defined in the State Bank of Pakistan Act 1956. The act guaranteed complete autonomy to SBP under the President of the country and empowered its Governor and Board with exclusive power and responsibility to perform its functions in the best interest of the nation free from political expediency and influence.

The IMF wants that this mother act is implemented in letter and spirit and the sanctity of SBP restored through its endorsement by the two houses of parliament. The incumbent government has no choice but to move on with the IMF. It is not just the question of securing another tranche of $ 1 billion but the whole regime of securing bilateral or private loans by the government is linked to its credentials with the IMF.

(The writer is a former President - Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2021