As Pakistan’s economic position becomes increasingly precarious with each passing day sans an IMF agreement, the question that crosses one’s mind is whether the IMF is being cruel to be kind. In our case, we hear that their demands on what Pakistan needs to do to re-enter the programme are getting stiffer with each new meeting and the deal looks more elusive than ever, whereas, in contrast, they have been rather quick to settle matters with another regional country, Bangladesh.
While we struggled to unlock $ 1 billion in IMF funds, a much bigger package of $ 4.70 billion with Bangladesh was quietly and swiftly finalised in January 2023. Ironically, Bangladesh is exposed to much less economic stress than Pakistan, but surprisingly gets a much bigger relief and on comparatively much softer terms! Now, could it be a punishment for Mr. Dar’s outbursts? Answer: Can’t tell or won’t know, but naturally the official institutional response is that the Fund reviews Bangladesh’s problems to have more to do with external shocks and international headwinds and not ones due to bad policies or poor economic management—meaning Pakistan’s issues are otherwise!
PM Shehbaz to chair cabinet meeting today Inflation in Pakistan has intensified with the cost of living having increased by some 50 percent over the course of the year. However, the real bone of contention between the country and its economic czar so far has been in determining the source of inflation. While the government’s finance boss (Dar) carries an opinion that the real drivers have been devaluation and external shocks (oil, supply chain, interest rates in developed economies, etc.), the IMF on the other hand seems to think it comes from the size of the government footprint, both on governance and in corporate markets; an unnecessarily high defence bill; and under taxation of certain sectors, thereby the twin issues of government-deficit spending financed by rising borrowings & the failure of the government to raise utilities in line with costs end up ultimately fuelling inflation.
Naturally, with such differing outlooks, it is no surprise that an agreement gets difficult to come by—Pakistan quickly needs a programme to help stabilise its foreign exchange reserves in order to avoid a looming default and the IMF is worried that since the new borrowings will essentially just end up servicing previous borrowings, its fresh lending may now not be very secure and therefore, it requires Pakistan to undertake some extraordinary measures to ensure that it does ultimately pay back its loan, even if Pakistanis in the process are subjected to some severe pain. To be fair, both parties may be right in their own way!
PM directs PTA to immediately restore Wikipedia services The IMF’s dance with Pakistan over the decades depicts an intense love-hate relationship. The institution at times (especially in its initial programmes) can be found to be too indulgent and then in the later ones, too punitive—too kind and too cruel. A good segment of its western masters thinks that Pakistan has invariably misused IMF’s help, wasting public money in corruption, misuse and often its government itself becoming embroiled in futile battles with its own domestic market forces. The Pakistani economic managers on the other hand feel that the Fund is both neo-colonial (i.e., too bossy) in its behaviour and too neo-liberal (i.e., too enamoured of free markets) in handing down its recipes without having a due feel on the underlying realities of the Pakistani marketplace. However, from us the people who have to actually bear the brunt of IMF’s shenanigans and our government’s inefficiencies, the truth lies somewhere in between.
Cold, dry weather expected in most parts of country The economy has been experimented with a bit too frequently by successive incoming governments who, despite some obvious economic follies, have seen the light of another day because the Fund continuously lent money on political considerations rather than economic ones. Evaluate as many Fund programmes to Pakistan as you may like and in each one of them the common mistakes are quite obvious: a) Every time the rescue plan fails to involve or consult the real stakeholders of the countries. The private sector, on whose performance would ultimately lie the onus of economic stabilisation and loan repayments, were either simply kept away and never thought to be important enough to be a part of the agreement finalisation talks.
b) The programmes consistently failed to design rescues that were robust enough to overcome the looming but obvious risks in Pakistan—the same mistake is being repeated this time.
Senator Mushahid Hussain urges govt to initiate 'normal traffic' at Thar border c) Pakistan’s financial system is very shallow and public finances are notoriously fragile since the tax base is narrow and reforms in revenue collection are long overdue, however, the Fund continues to suffice in demanding quick revenue generation options rather than opting to work with all the economic stakeholders in evolving sustainable national revenue generation mechanisms.
d) Monetary policy and subsidy removal policies have been nakedly shoddy with a total disregard for Pakistan’s exports, the result over the years is there for everyone to see, as Pakistan seems stuck in an export trap where the ceiling is too low for its requirements or perhaps even for its economic survival.
e) Last but not least, inflation drivers have repeatedly been misidentified, thereby forcing monetary policy regimes on Pakistan (both in shape of interest rates and devaluation) that have been totally disastrous.
PM orders restoration of Wikipedia To conclude, one can simply hope that not only is Pakistan able to re-enter the stalled Fund programme and get some relief by the release of stuck tranches, but more importantly it does so in a way that helps its operational future instead of compromising it. Given the colossal extent of the external debt, it would be good to see the IMF help out Pakistan with a long-term strategy that leads to an early debt restructuring in which Pakistan can ask its creditors to accept a delay or decrease in repayments coupled with capital controls to prevent money fleeing the country.
Steps like these can go a long way in reducing our debt burden and at the same time in optimising the usage of the Fund’s money lent to us, because not only will this help bolster the country’s foreign-exchange reserves, but will also help build confidence in the aftermath of a debt restructuring, something that appears to be the writing on the wall. Additionally, such a course alludes indirectly to another implicit goal of the IMF in Pakistan: to rescue its own dismal reputation in the country and to regain the trust of its people who have time and again pinned their hope on the institution every time their government has let them down.
Dr Kamal Monnoo
The writer is an entrepreneur and economic analyst.
Email: kamal.monnoo@gmail.com
As Pakistan’s economic position becomes increasingly precarious with each passing day sans an IMF agreement, the question that crosses one’s mind is whether the IMF is being cruel to be kind. In our case, we hear that their demands on what Pakistan needs to do to re-enter the programme are getting stiffer with each new meeting and the deal looks more elusive than ever, whereas, in contrast, they have been rather quick to settle matters with another regional country, Bangladesh.
While we struggled to unlock $ 1 billion in IMF funds, a much bigger package of $ 4.70 billion with Bangladesh was quietly and swiftly finalised in January 2023. Ironically, Bangladesh is exposed to much less economic stress than Pakistan, but surprisingly gets a much bigger relief and on comparatively much softer terms! Now, could it be a punishment for Mr. Dar’s outbursts? Answer: Can’t tell or won’t know, but naturally the official institutional response is that the Fund reviews Bangladesh’s problems to have more to do with external shocks and international headwinds and not ones due to bad policies or poor economic management—meaning Pakistan’s issues are otherwise!
PM Shehbaz to chair cabinet meeting today Inflation in Pakistan has intensified with the cost of living having increased by some 50 percent over the course of the year. However, the real bone of contention between the country and its economic czar so far has been in determining the source of inflation. While the government’s finance boss (Dar) carries an opinion that the real drivers have been devaluation and external shocks (oil, supply chain, interest rates in developed economies, etc.), the IMF on the other hand seems to think it comes from the size of the government footprint, both........
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