Claims and counterclaims

The Federal Minister for Finance, Ishaq Dar, while in the United States to attend the World Bank/International Monetary Fund (IMF) annual meeting, met with the Chinese Vice-Minister for Finance Yaobin Shi and President of International Fund for Agriculture Development (IFAD). He reiterated his litany of economic achievements including a growth rate that crossed the 4 percent mark last year after six years and success in Diamer-Bhasha Opportunities conference targeted to convince multilateral and bilateral donors to support the project. His objective: to lure Chinese investment as well as seek an enhancement of the IFAD programme for Pakistan.
While one can fully support a Finance Minister's penchant to be overly optimistic with the objective of aligning investor perceptions to support the economy - perceptions which play an extremely critical role in investor decisions - yet there is a need to present realistic data to prospective investors/donors who are unlikely to be swayed by obviously flawed data. It is extremely unfortunate that Dar's claim of growth rate is being openly challenged, the growth rate of 4.4 percent was achieved in 2011-12, which was inexplicably downgraded two years down the line to enable Dar to claim that during his first year as Finance Minister growth rate crossed the 4 percent mark. It is also unfortunate that in spite of repeated claims by the Finance Minister the international donor agencies remain reluctant to invest in Diamer-Bhasha dam. This reluctance is not based on their assessment of the relevance of the dam to Pakistan's economy and its highly likely beneficial impact on growth, but on their policies that have been approved by their board of directors that determine their lending criterion. While these conditions do not apply to bilateral lending/grant assistance, however, donor governments are also constrained by their public that is increasingly passionate about environment protection given the climate change in recent years. A better option would have been for the Finance Minister to have focused the development allocations on construction of the dam delaying other projects till its completion.
Two factors should be a source of serious concern to the general public with respect to the PML-N government's macroeconomic policies. First, the Finance Minister's statement that Pakistan would receive 1.1 billion dollars from the IMF in December indicates that the 550 million dollars scheduled for release by end September is deferred. Thus two tranches may be cobbled together but only subject to our compliance with all the time bound actions as clearly the Fund is not inclined to grant a waiver. There are three time bound actions that Pakistan has not complied with - two of which are stalled due to legal challenges namely sale of OGDCL shares (to net around 810 million dollars) and access to gas infrastructure development cess budgeted at 145 billion rupees. The third condition relates to government reluctance to raise electricity tariffs by 7 percent due to political constraints though the government recently directed Nepra to raise rates immediately by 30 paisa for October bills and another 12 paisa per unit later.
And secondly, a recent IMF publication titled IMF Fiscal Monitor October 2014 revealed that 24.5 percent of the GDP would be required to pay off the country's maturing debt and 4.7 percent would be required to finance the fiscal deficit this year. In addition the Fund forecast that clinically adjusted primary balance (CAPB), which is required to reduce the debt, is in deficit (negative) by 0.2 percent mainly due to the floods. The country's total revenue was projected at 15.1 percent of the GDP and expenditure at 19.8 percent for the current fiscal year reflecting a gap of 4.7 percent - estimates that are unlikely to bear fruit given past claims and subsequent performance. But even if these estimates are met heavier borrowing is anticipated and in the event that Pakistan fails to comply with the agreed conditions IMF is likely to desist from releasing any tranche, as it did in 2010 that carries the risk of cessation of budgetary support by other multilaterals as well as bilaterals. In other words, even greater reliance on domestic borrowing would occur, which in turn, would crowd out private sector borrowing with its negative impact on inflation, unemployment and lower growth rate. This is no time for complacency and self-congratulation at international fora but a time to present realistic data and revisit some policies that are dampening certain key sectors including artificially keeping the exchange rate within the 100 to 103 rupee per dollar, which is negatively impacting on exports.