Despite assurances of official circles it appears that the IMF bailout is still facing difficulties and many differences have not been ironed out yet. This impression was confirmed by Teresa Daban Sanchez, the resident representative of the IMF who, while responding to a query whether or not a staff-level agreement was possible by the third week of the month, responded that discussions on policies and reforms that could be the base for a staff-level agreement were still under way. The assurance that bailout agreement would be signed by the third week came from no other than the finance minister.
In October, Pakistan formally requested the IMF for an economic assistance package and backed it up with a series of meetings with senior IMF officials. Pakistan’s persistent economic woes consisting of mammoth deficits, shrinking foreign currency reserves, low exports, diminishing tax revenues, weak currency, external debt payments, and soaring sovereign debt have forced the country to seek its umpteenth IMF bailout package in three decades.
The PTI government took many measures to ease the situation including currency devaluations, loans from Saudi Arabia, UAE and China and the issuance of Pakistan bonds but they failed to achieve the required result of not seeking an IMF bailout package. This week, the Asian Development Bank (ADB) projected further deceleration of Pakistan’s GDP growth to 3.9 per cent and rising inflation pressures on average at 7.5 per cent for the ongoing financial year. The ADB’s Asian Development Outlook (ADO) 2019 also noted that Pakistan was discussing a macroeconomic stabilisation programme with the IMF to meet its large financing needs.
The economic instability witnessed the rupee again shedding its value although gradually this time, and was traded at Rs141.40 in the interbank market. It is feared that unemployment will hit its peak and the number of people living below the poverty line would also increase every year during the stabilisation period. This situation was emphasised by the finance minister who mentioned that the rupee will further plummet against the dollar and new investment will come to a halt if Pakistan does not strike a deal with the International Monetary Fund.
Despite initial reluctance shown by PTI economic team, the finance minister met IMF Managing Director Christine Lagarde and was followed up by PM Imran Khan specifically asking for a meeting with her. After the meeting she mentioned that IMF stands ready to support Pakistan but emphasised the need for decisive policies and a strong package of economic reforms. Her reaction was substantiated by a senior Pakistani official who confirmed that the conditions associated with a loan could include some harsh measures and the government will have to be very prepared to explain why Pakistan has been forced to return to the IMF.
The finance minister is off to Washington to participate in the IMF spring meeting and would try to finalise the IMF bailout. It should be taken into account that the Indian lobby in the US capital has already launched a campaign to block the expected IMF assistance for Pakistan. In this respect three congressmen — Ted S. Yoho, Ami Bera and George Holding — sent a letter to US secretaries of State and Treasury, asking them to prevent the IMF from concluding a deal with Pakistan. The congressmen claimed that Pakistan would use the IMF package to repay China for the loans incurred under CPEC. Two of these lawmakers — Bera and Holding — are co-chairs of the Indian caucus in Congress.
Regrettably, decades of mismanagement of the economy has brought the country to a point where entering into an IMF programme is considered grounds for relief and some sort of saving grace for economic management in the country. Pakistani economic managers have conveniently ignored the lessons derived out of decades of experience with the IMF that these programmes are rarely ever easy and almost always exact a steep political price from the government of the day. In the current scenario it looks unlikely that Trump administration will render any help to Pakistan in this connection.
The economic managers should be well aware that economic difficulties are very painful to bear and there is hardly any way to spin-out of them. Policy-makers therefore should brace themselves for the after-effects of belt-tightening and should strive to remain as straight as possible. Currently, the palpable tendency appears to be to lash-out against critics and rant about the policies of the previous governments. This is the time to portray a confident intent of negotiating difficulties with as much firmness as possible along with ensuring that prudent economic measures are devised.
The future portends that a slowing economy will further diminish revenues and the chances of broadening the tax base may not be as successful as expected. The fear is that the burden of narrowing the fiscal deficit will naturally fall upon those who are already in the tax net creating further discomfiture. In these conditions it is important that the economy does not become part of a vicious circle where revenue measures serve as a brake on the economy and the slowing economy necessitates further taxes. The need is imperative for soothing the growing anxieties in the country so that public dissent does not boil over. TW
Schehram Siddiqi is an industrialist based in Lahore