Azour’s argument

EDITORIAL: The International Monetary Fund (IMF) uploaded a transcript of the 13 October 2022 press briefing on the sidelines of the ongoing IMF/World Bank annual meeting (10-16 October) where for the first time a member of the Fund’s senior management, notably Jihad Azour, Director, Middle East and Central Asia Department referred to the floods in Pakistan, stating that “we were saddened by the loss of human life as well as also livelihood in Pakistan with the flood and we presented, and we reiterate our condolences for the people of Pakistan.”

Azour did not elaborate on precisely what was “presented” by the Fund till date with respect to the floods; he, however, proceeded to add that “the Fund has been very supportive to Pakistan over the last period,” and mentioned the additional flexibility provided by the Fund during the Covid crisis, however while the pandemic had major global repercussions including in the economies of developed Western countries who spearheaded relief efforts in developing countries unilaterally, bilaterally and through multilaterals yet unfortunately the floods were endemic to Pakistan and the Fund’s response has been less than salutary so far.

Azour then proceeded to note that the Fund “accelerated some of our disbursement to recently exogenous shocks and the shock of increase in price of food and commodity.” These two factors, like the pandemic, relate to global issues associated with the Russian-Ukraine war.

In addition, the disbursement of 1.2 billion dollars in the first week of September after completing the seventh/eighth reviews (less than ten days before the UN Secretary General Antonio Guterres remarked that he had never seen climate carnage like Pakistan floods) did not constitute accelerated disbursement as the original Fund schedule was completion of seventh review on 5 March and of the eighth review on 3 June 2022.

Combining the seventh/eighth reviews and delaying disbursement till Pakistan authorities had implemented the harsh upfront extremely tight monetary and fiscal policy conditions agreed during the staff review with absolutely no mention of the floods in any of the documents demonstrated a complete lack of empathy with 33 million Pakistanis affected by the floods.

Be that as it may, there is no doubt that Azour’s contention that the World Bank and UNDP are currently conducting an assessment of the damages after which the Fund “will need to update our numbers” is valid; however, he needs to be aware that the World Bank has already revised the growth rate downward to 2 percent (against the Fund’s assessment of 3.5 percent). He also noted that “we will listen to them (Pakistan authorities) to see what are their priorities, and how the fund can help.” One would hope that the visiting Pakistan team led by the Finance Minister and Governor State Bank of Pakistan make an appropriate logical economic case that would convince the IMF staff while providing the necessary relief to the people of Pakistan.

Finally, one can fully support Azour’s argument that subsidies targeted to support certain items have proved regressive and is “not the best way to use the very limited fiscal space that exists. Therefore, we are encouraging Pakistan…to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it.”

The reference is clear for the informed: it is not a matter of funding a subsidy – be it a reference to the subsidy announced by former Prime Minister Imran Khan on 28 February 2022 or the 19.99 rupee per unit of electricity agreed by Finance Minister Ishaq Dar for the five export-oriented sectors at a total cost of between 90 to 100 billion rupees to the exchequer – but as per Azour “what is needed in order to provide the right protection for those who need it at the time where inflation is very high.”

In this context it is relevant to note that the then Finance Minister, Dr Hafeez Sheikh, while chairing a meeting had highlighted the need for a study that would determine the efficacy of expensive fiscal and monetary incentives meted out to certain productive sectors.

There is, therefore, an urgent need to bring our own economic house in order. However, thus far the government has not come up with any out of the box solutions. One would hope that as a first step the government undertakes massive austerity measures that include significant reduction in current expenditure (instead of budgeting a raise) and untargeted subsidies. And while the flood victims merit urgent assistance, yet that would not likely be the sole criterion when discussions begin on the ninth review with the Fund in November.

Copyright Business Recorder, 2022