Immediately on assuming power in mid-2013, the government rushed for an IMF loan to stave off a default when depleting foreign exchange reserves of US $11 billion covered less than six weeks of imports. The reserves now stand at around $21 billion.
IMF sanctioned $6.7 billion as a bailout package. The loan disbursement is now at its tail-end with $497 million approved to be released this month on the conclusion of the 10th IMF review held early this month under an Extended Fund Facility (EFF). This leaves a balance of $1.1 billion yet to be released from the total of $6.7 billion.
The government opted for an IMF loan with certain commitments made to the people of Pakistan and to the IMF. The roadmap then rolled out was that the loan will be utilised for economic revival, structural reforms, rationalisation and privatisation of loss-making public sector enterprises, provide relief to people and businesses from the energy crisis, restructuring of revenue collection regime and growth in revenue, debt retirement, industrial revival, growth in GDP and foreign and local investment, good governance, better fiscal discipline and similar economic and social performance enhancement parameters.
It is now time to review how far the government has honoured its commitment and what is the take-home for the country and its people from the IMF loan? There has been progress on structural reforms and governance is better. Also, the will of the government to perform better is evident, but it falls short of delivering the expected results on ground.
The economic growth, in real terms, continues to be sluggish. The IMF retained the GDP growth projection at 4.5% for the current fiscal year which is 1% less than the official target. The rate is not sufficient to arrest unemployment which currently stands at a 13-year high of 8.3 percent, whereas more people are systematically moving below the poverty line with serious social consequences leading towards an unstable Pakistan.
The government's privatisation plan aimed at bringing the country's finances back on track was the most crucial commitment made to the IMF and to the nation in getting rid of loss-making public sector enterprises infected with corruption, cronyism and incompetence. It now increasingly appears that the government has back-tracked on this commitment primarily because of fear of labour unrest and its political fallout and the government's inability to handle both.
Privatisation of PIA is deferred by six months, if at all it will happen in the current tenure of the government. Privatisation of the power utility companies was a priority to turnaround the ailing power sector of Pakistan. This appears to have been stalled. Faisalabad Electricity Company (Fesco), in an advanced privatisation stage, is not moving ahead. Privatisation of Pakistan Steel Mills is also stalled.
The government failed to put up a strategy, in the very early stage of the privatisation process, to deal with nearly a force of over 500,000 unionised staff of which around 400,000 exist in the power sector. Also, it failed to put up a political game-plan.
The so-called independent boards set up by the government to ensure better governance of state enterprises to ease privatisation lack transparency and competence. By and large, personal and political loyalty prevailed over merit in selections.
On the revenue collection side, against the goal of Rs 226.4 billion, FBR collected Rs 209 billion in January 2016 and missed the target by Rs 17 billion although it achieved a growth of 20.5% over the same period of last year.
Industrial growth continues to be sluggish and Pakistan's global ranking in 'Ease to do Business' is at its lowest in the 2016 rankings. The Foreign Direct Investment (FDI) is also at its lowest in the last 10 years and the confidence of the foreign investor has not been restored.
The question posed at the tail end of the disbursement of $6.7 billion IMF loan is: "What good IMF loan has brought to the nation and its people?" The answer is not promising. Loss-making state-owned enterprises drain out over $5 billion every year from the public money. It is around one-eighth of the government's fiscal revenues of last year of around four trillion rupees. This drain will continue to happen endlessly. The public money so far invested into the privatisation process will go to waste, as the restart, if any, will be an another mandate and another regime. The government will do good if it can arrest this slide and move ahead with the technical aspect of the privatisation process and take it to a level where the new regime does not have to start from zero and hopefully own the good work already done.
Not much relief is expected in the availability and affordability of power while no regime has been put into place to arrest the circular debt which shall continue to mount and dent the energy sector. In addition to IMF loan, the government borrowed $1.42 billion from foreign countries and financial institutions during the past three months. This practice is likely to continue. It is forecast that in 2016, Pakistan will face a balance of payment crisis which is likely to escalate in subsequent years. It is most likely that the new government in mid 2018 is confronted with the same financial crises as this government did in mid-2013, if not worse.
The Privatisation Commission has generated $1.7 billion over the last two years, but this amount is reported to have been used to finance the budget instead of retiring debt which is a violation of the Privatisation Ordinance of 2001. This trend is likely to continue.
In the summary, the take-home for the nation and its people from the IMF loan is not promising. It cannot be of any benefit if the government continues to put good money into bad money to subsidise the incompetence in the public sector, bad state governance and veered economic and growth priorities.
(The writer is Chairman Avant Ventures and former President OICCI & ABB Pakistan)
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