Covid-19 has killed the IMF backlash?

Just as Covid-19 may have killed the tech backlash (as reported in The Economist), it may have also killed the IMF backlash (on-going since August'19) in this country. The politicians, media, gurus, businessman and speculators are heaving a sigh of relief at reading the obituary of structural reforms, in the form of 'hold' put on the EFF programme. Hopefully, this obituary will remain valid at least till the end of this government's term. Once again the economy will be back to its old and tested or 'business as usual' ways as Covid-19 pandemic disappears in a few months' time, but economic bonanza left in its trail in terms of filling the begging bowl, continues for the remaining 3 years. Short of our capacity to print US $, we are happy with IMF/WB or any other lending source for all the unconditional short/long-term loans with zero or nominal interest. Under the garb of Covid-19, the next step will be to muster international support to re-schedule the developing countries' debt of last 20 years if not of the last 50 years. In the more near term, it will be up to the next government in power (whether incumbent or new faces) to reform this country's economic system for the umpteenth time as it has remained lucky in avoiding tough economic decisions since the first similar programme signed in the 1980s.

It is an interesting hypothesis to explore a) that to what extent the unforeseen Covid-19 single-handedly killed the IMF back lash or b) government as a sole signatory of EFF was also eager to write its obituary now afforded by Covid-19?

In support of the former, extraordinary events/circumstances require or demand extraordinary actions/interventions. So the government cannot be blamed (entirely or partially?) for writing the obituary. Moreover, if IMF can be easily goaded to extend deficit limits under the cover of fighting Covid-19 so why not breach them. The unseen cost in terms of rising debt/interest payments (as there is no free lunch from IMF) and erosion of economic and thereby political sovereignty can be handled by future generations or in the near term by future governments. A similar approach was adopted by all the governments in the past for debt accumulation whether it is through overvaluation of currency, easy fiscal policy, $ denominated rates of return in energy investments or for reducing poverty.

The arguments for the latter rests on the extent/intensity of federal government, provincial partners, experts and other stakeholders' ownership of EFF as reflected in the efforts to implement it in letter and spirit since Aug '19.

The government: In its election campaign and dilly dallying for 8 months after coming into power, it is apparent that PTI never sincerely owned the programme. It finally succumbed to signing it when it realized that it cannot fill its begging bowl from other sources (excluding China, Saudi Arabia and the UAE) including ADB, IDB and bi-laterals without tying its noose with the IMF. Embarking on the programme, after meeting a prior conditions of hefty devaluation of the currency (quantitative target), it embarked on structural reforms to document the economy and broaden the tax base, its biggest challenge so far is a list of agreed structural reforms. If it had succeeded in securing the looted money (perceived in billions of $) into its coffers, it may have cushioned the backlash against the IMF by some appreciation of the currency and generating fiscal space for the country. But to reasons well-known, bonanza of looted money never materialized. The very first step towards VAT by documenting the service sector began faltering after the announcement of the budget. The drive continued with several extensions and 'One step forward and two steps backward' speed, waiting for some third force like Covid-19 to ultimately kill it. Hopefully, the loan of US $300 million given to FBR by the WB in support of EFF to reform the taxation system will not follow in the steps of a similar loan given in the 90s. Privatization already facing politicization will be another victim of Covid-19. Attempts at energy sector reforms are being labeled as 'media trial'. Commitment to enhance the autonomy of SBP is involved in a 'give and take' power/political struggle between the MOF and SBP. Both GOP and IMF were smart not to include any conditionality on the rate of increase in exports. If by any chance it had been met, it would have weakened IMF's leverage in the next bailout. Before going for second tranche, the government had already anticipated that it might have to seek IMF waivers (also predicted by gurus) on its ambitious revenue targets and thus began to strengthen its 'trump' card as an indispensible partner for the success in face saving withdrawal of American troops from Afghanistan. PTI's second year designated as year of 'growth' indicated how restless the government was to grab any opportunity to wriggle out of the bailout program without any 'structural' reforms and lo and behold Covid-19 has come to their rescue in a strange contorted/convoluted manner.

Provincial partners: With CMs craving to behave as PMs of countries, they were unhappy from the very start about contributing to agreed deficit targets of the federal government. Moreover, it took a large IMF contingent to convince them to agree to reform the taxation system towards inter-provincial harmonizing the tax regime specifically the contentious sales tax/GST regime. Here again Covid-19 has come to the rescue of provincial partners.

Experts and politicians: This group is an interesting amalgamation of strange bedfellows with diverse ideologies, but united to remove IMF fetters. Given the costs of EFF package in meeting the quantitative and structural targets (both the costs are publicly known and the latter not realized in the current EFF), by January'20 there were increasing calls from 'home-grown strategists' and politicians from either side of the political divide to re-negotiate the EFF. The ownership of the programme by the politicians proved to be short-lived as the demand for 'pound of flesh' was not readily met given the tight fiscal policy envisaged in the program. The reforms suggested by the experts are reduced to buzz words such as many fold increase in PSDP, manifold decrease in government current expenditure, specifically defense, increase in poverty alleviation expenditures, boosting inclusive growth, heavily taxing the rich and complete ban on luxury goods import (including cars in CBU and CKD condition). How they will attain macroeconomic stabilization (main purpose for approaching the IMF) in a holistic manner remains unknown. Admittedly, they are structural in nature, but even IMF's structural targets have not been taken seriously by itself, leave alone GOP and continuously add to the backlog of waivers to be negotiated politically at each tranche meeting. However for gurus and politicians, they have remained popular interventions to whip up the backlash against the IMF.

Traders and industrialists: In spite of being the most diverse group qualitatively and quantitatively, they have spearheaded the backlash against IMF and explicitly against any form of meaningful documentation, in a patient, calculated and experienced manner. In fact even without Covid-19, the IMF programme was in doldrums, as it was held hostage to 'Growth rate, Poverty and Unemployment' buzz words. During Covid-19 they have been rewarded handsomely by the 'Galore of Packages, ordinances and other fiscal/monetary perks" without any empirical evidence and which are unlikely to be withdrawn anytime soon in the wake of covid-19.

The last question in this Covid-19 saga is how serious (not how quickly) will the GOP be to resuscitate the 'On hold' programme by re-negotiating it. Given the experience gained in its first programme with the IMF along with political damage, it will try to stretch the unwelcome bonanza afforded by Covid-19 as much as possible and may also attempt to add few more freebies along the way. However, the only exception and unknown is the timeframe for serious shortage of dollars to appear, and then re-negotiations will depend on the number of 'Trump' cards held each by GOP and IMF at the time.

(The writer is a former Acting Chief Statistician of Pakistan Bureau of Statistics. The views expressed in this article are not necessarily those of the newspaper)