No more concessions from global lenders

The Finance Minister Ishaq Dar on his recent visit to Washington could not apparently get concessions from the International Monetary Fund (IMF) and World Bank to reschedule loan repayments and ease up on the non-negotiable conditions set by the IMF on grant of subsidies. This time an attempt was made by using the ‘flood sympathy card’. Reportedly, it did not work.

The international donors and lenders are no longer flexible to support the political agenda of the governments of appeasement of the electorate and the elite lobbyists through subsidies.

The World Bank Group President in Washington is reported to have advised Ishaq Dar to implement fiscal and energy reforms to stabilise the economy for sustained growth.

On a similar note, the IMF officials also advised Pakistan to move away from untargeted and wasteful subsidies and instead divert these resources to those who need them the most. The IMF also emphasized on the implementation of fiscal and governance reforms.

Earlier, the then Finance Minister, Dr Miftah Ismail, made similar futile attempts. In a public statement this week at a forum in Karachi, the former Finance Minister is reported to have admitted that: “There was no commercial lending, we couldn’t sell our bonds.

The government’s efforts to secure financing from friendly nations also met with cold shoulders and deaf ears. When you are defaulting, no one helps you out. Raising prices was the only way through which the country could have been saved from default.”

At the last leg of PTI (Pakistan Tehreek-e-Insaf) government, the then Finance Minister Shaukat Tarin, too, attempted to secure flexibility in subsidies on fuel and electricity tariffs from the IMF in the wake of rising inflation due to the commodity super cycle. Upon IMF’s denial the government went its way.

The message from all global lender is loud and clear - “Set your house in order. No more excuses”. The IMF and the World Bank have repeatedly been asking Islamabad to implement fiscal and governance reforms and refrain from subsidies which are selective and counter-productive. Such subsidies distort the fiscal discipline. This has always been at the core of their support programme for the country.

In the last two decades, every government, through waivers from IMF, evaded reforms. Successive governments were liberal in doling out substantial amounts of subsidies and tax cuts to gain political mileage and appeasement of favoured powerful lobbies of businessmen, farmers and parliamentarians. These subsidies worked more in favour of the elite than the public at large.

In spite of the agreement with the IMF the country’s fiscal consolidation is not happening. Against all expectations, funding from other donors is not forthcoming. In the background of looming global recession, uncertainty in markets and political turmoil the lender fatigue is overtaking the world both at multilateral and bilateral creditors’ ends. They have little room left to accommodate Pakistan.

All hopes, if any, now rest on China. The government reportedly has worked out over a dozen initiatives to be taken up and MOUs to be signed during the visit of Prime Minister Shehbaz Sharif to China next month.

The projects that are expected to be taken up are: (1) 10,000MW solar parks (2) procurement of Liquefied Natural Gas (LNG); (3) debt restructuring; (4) ML-1 Railway project; (5) Karachi Circular Railway; (6) agriculture development; (7) opening of RMB Account; (8) cyber security; (9) flood relief and rehabilitation; and (10) relocation of Chinese industries in the SEZs.

Considering the limited tenure of the incumbent government and restrictions imposed by the IMF on further exposure on loans and liabilities none of the ambitious projects included in the list appears realistic to be discussed at this stage. What might work out is debt restructuring, opening of an RMB account, cyber security, flood relief support, procurement of LNG and relocation of Chinese industries in SEZs.

While the government expends all its time and energy on making futile attempts, one after another, in seeking loans and concessions from lenders it has made no meaningful effort to set its own house in order or correct the way it does things.

The government expenditure continues to be lavish and beyond means, loss-making public sector enterprises continue to bleed the nation’s economy, circular debt as a consequence of incompetence and corruption continues to mount, no meaningful fiscal restructuring has been inducted into the system. The message from all global lenders to the government is: “set your house in order. No more excuses.”

Copyright Business Recorder, 2022