IMF cautions Pakistan

The IMF and Pakistan completed the $6.4 billion bailout programme earlier this week. This programme is reported to have the distinction of being the first ever to have achieved completion out of a total of 11 IMF programmes which Pakistan went through in its short history of nearly 7 decades.
The IMF Resident Representative - Tokhir Mirzoev - is reported to have concluded the programme on a promising note. According to him, country's economy has turned in a different direction by setting a new course for growth and while the economy of Pakistan might not have reached the final destination, but it is in the right direction which is more important to appreciate. He rightly underlined that the real challenge now for the policymakers is to build on what Pakistan has achieved in the last three years and to continue the momentum of the reform process.
The IMF, on the other hand, has cautioned Pakistan that delaying economic reforms or reversing decisions that have already been taken could undo the economic stability achieved over the last three years and Pakistan might end up with a crisis. "The end of the IMF programme did not mean an end of the reforms," emphasised the IMF. The warning of the IMF appears to be based on apprehensions and signals that once out of IMF monitoring, the government may slow paddle on reforms.
The IMF programme is primarily based on structural reforms needed to put in place good economic governance and fiscal discipline to achieve a sustainable economic growth for the country by enhancing revenues to enable the country to fund its needs and meet its payback commitments towards the IMF. Most of the reforms have political consequences such as enhancing the revenue by netting in more people into the tax base, identification of non-fillers for tax purposes like traders and real estate stake holders, application of withholding tax, separation of the loss-making enterprise in the public sector through their privatisation, reforms in energy sector which is crippled by accumulation of circular debt and other similar issues. All these parameters are the difficult ones and the government, in its three years of working with the IMF, managed to go around many of the difficult reforms by securing waivers or a part thereof from the IMF. Most significant and rather surprising was the waiver granted for suspending the privatisation of loss-making public sector enterprises. On the other hand, no meaningful reforms or any significant restructuring appears to be in place to set right this ailing sector of the economy. The worst affected is the public power sector, mainly the power distribution companies, where privatisation is aborted and no reforms or re-structuring is known to be in place.
With national elections scheduled for mid 2018 and countdown for the same having started, the political leadership in power is not likely to pursue the left-over of the IMF reforms, notably the items that have political consequences for the political leadership.
Adopting an IMF programme is considered more of a stigma than a loan to boost country's economic growth with payback through more revenue generation, with better economic governance, fiscal discipline and reforms. Often, the part related to secure loan is well perused by the governments, but the reform part is limited to bare minimum to keep the show going. So is the case with the current IMF loan where the loan has been fully availed while the difficult reforms have been left out, thereby subjecting the whole programme to risk.
The IMF programme is also often a subject of criticism by the opposition parties. Former Advisor to the Prime Minister on Finance, Dr Hafiz Pasha, is reported to have contested the figures of 4.7 percent economic growth as cited by the IMF for the last fiscal year. He stated that IMF projection of 4.5 percent economic growth during the eighth review of $6.64 billion Extended Fund Facility (EFF) was based on an 8 percent growth in investment and a 2 percent growth in exports for 2015-16, whereas in actual growth in investment was a mere 5 percent and exports were even a negative 9 percent. According to his calculation, the fiscal deficit for last fiscal was 5 percent and if circular debt was included it would be over 7 percent. Dr Pasha further stated that the IMF's viewpoint of PSDP utilisation was inappropriate and past experience shows that utilisation of PSDP was plus 8 percent in 2013-14 while it was a negative 15 percent in 2014-15 and now a massive negative of 25 percent even when the government was undertaking the China Pakistan Economic Corridor.
Pakistan is reported to be have reached an all-time high external debt of USD 69558 million as of first quarter of 2016 which, when compared to a record low of USD 33172 million in the third quarter of 2004, is a phenomenal increase. Loan repayment is a serious and challenging commitment.
The political leadership is confronted with many economic and political challenges. Its commitment to end power crises within its tenure is not likely to happen. Coal-based power plants will be much delayed on account of lack of sufficient infrastructure for unloading and transportation of coal. Moreover, it will also take time before LNG sufficient quantity is available for LNG-based power plants. Many of the hydropower plants are facing delays and cost overruns, the foremost being Neelum-Jhelum Hydropower Plant in the public sector. The much discussed Nandipur fuel-based power plant is no longer viable to operate on account of delays and cost overruns. Its diversion to a cost effective fuel mix, if any, will take a lot of time.
The circular debt will continue to be an issue denting the economy.
Government's another important commitment to the nation was to separate the loss-making enterprises in the public sector through privatisation and structural reforms. It is unlikely to happen in PML-N government's current tenure.
The government has a challenge to cover up the gaps and maintain economic growth till next elections. It has to enhance revenues, plug losses, service foreign debt and spend money to sustain economic growth. The winning solution is to balance the three through good economic governance, fiscal discipline, reforms and restructuring to optimise gains.
(The writer is former President, Overseas Investors Chamber of Commerce and Industry (OICCI).)