PML-N govt should seek short-term borrowing from IMF

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ISLAMABAD: 

The PML-N government is being proposed by its well-wishers to seek $6-7 billion in short-term emergency funds under the standby arrangement from the International Monetary Fund (IMF) to improve its highly critical foreign exchange reserves.

However, officials are fearful that any standby arrangement, if agreed by the fund, will be full of front-loaded conditionality to achieve the much-needed economic stabilisation.

Former president Pervez Musharraf, when he took over in 1999, also accepted a 10-month standby arrangement that was later converted into a formal programme. The same could be repeated by the IMF should the Abbasi government accept harsher conditionality, it is said.

Ever since Panama leaks surfaced some two years ago, the PML-N government has stopped giving priority to the economy and as a result fiscal deficit and current account deficit were getting precarious with the passage of time.

The issue is getting further serious as new Adviser on Finance Dr Miftah Ismail, State Minister for Finance Rana Mohammad Afzal and Prime Minister’s Special Assistant on Taxation Haroon Akhtar Khan are looking extra busy in political fire-fighting rather than giving full time to the economy.

Their involvement in the upcoming Senate elections, it is said, amply shows that no one is interested in fixing the economy and they all are looking at the future elected government to negotiate with the IMF to rescue the economy through a bailout programme.

Former finance secretary Dr Waqar Masood has conceded in an article published last week that the economy has gone back to 2013 from where the PML-N government had started its successful economic journey. “It appears that we are back to square one as the government could not show better performance during its last two years compared to its first three years.”

He also wrote that $3 billion had been wasted while another $3 billion were borrowed besides showing billions of dollars of commercial banks in the central bank’s account. He did not know whether any standby arrangement is in the offing.

“But perhaps that arrangement with the IMF is a solution to the present economic crisis,” he said, adding that timely actions were required to address serious economic challenges that were particularly aiding the twin deficits.

Uninterested donors

Recent developments indicate that the World Bank and the Asian Development Bank (ADB) are not interested in extending any considerable assistance – thanks to the bad performance of economic ministries.

The IMF, like always, is expected to help fix the economy under these challenging times. But then those, who are in the know of things, maintain that in the first place the Abbasi government is clueless how to deal with the deepening economic crisis.

Secondly, it is cognisant of the fact that, if the IMF is approached, it may set political conditions other than those relating to the economy.

These political conditions to be imposed on behalf of the US State Department, according to PML-N Senator Enver Baig, may entail rolling back of the country’s prestigious nuclear programme. He believes that the external debt that has reached $85 billion will soon be touching $100 billion.

“When you are unable to repay that huge external debt, I am afraid that would be the time when the IMF starts linking its assistance with political conditions,” the PML-N stalwart said.

Insiders say even if no political conditions are attached, certain economic discipline has to be ensured by the IMF as being the lender of last resort.

Fund officials could force the government to undertake necessary restructuring of the economy and implement related reforms which were avoided due to political expediency that eventually took the country into a serious economic mess.

Back to square one

Back in 2013, the economy was exactly like that of today as all the key economic indicators including fiscal deficit, growth, inflation, foreign exchange reserves, external funding, exchange rate, circular debt and overall industrial and agricultural development were in an acute mess.

Since the performance criteria of three-year $6.67 billion Extended Fund Facility remained dismal, the situation is turning serious. But the important question is why had the fund officials given clean bill of health to the Pakistani economy by extending waiver after waiver.

There were 12 waivers during the programme that ended in October 2016. Till sixth months ago, the IMF was all praise for the economy, so why is it objecting to it now?

Many believe that it was a political programme that was orchestrated by the US to avoid any turmoil in the region. Generally, critics and independent economists had been accusing the IMF of “partner in crime” by not getting tough on the government when it failed to implement policy reforms in key economic areas.

It was said to be a collusion to allow the government to manipulate key economic statistics to show higher growth that ultimately proved to be disastrous for the economy. No day passed when allegations of data manipulation were not levelled against the government over which the fund officials remained quiet.

The situation today is different, wanting urgent policy measures to seek another bailout package from the IMF.

Reforms relating to revenue, energy, privatisation, autonomy of the central bank and governance have remained stalled or partially implemented by the present government.

Now when elections are around the corner, the fiscal discipline has further been comprised by extending billions of rupees to the MNAs and MPAs by cutting budgets of ministries and departments. The objective is to help win PML-N legislators in 2018 polls. This is one of the serious objections that had reportedly been raised by the international financial institutions (IFIs).

Revenue growth, which has gone down from 16% to 8%, is surely a serious cause for concern. Why tax performance of the government is getting dismal?

The decline in non-tax revenue is another worry for the planners. Circular debt has crossed Rs530 billion and nobody knows how the government plans to deal with this issue.

On the external front, the unprecedented gap between imports and exports continues to cause serious balance of payments problem. Refusal by the US to release the remaining over $2 billion in Coalition Support Fund (CSF) has made the matter worse.

The declining foreign inflows are not allowing foreign exchange reserves to improve that are now not sufficient for two months of imports.

There was an $800-million reduction in home remittances due to which after a long time the government could not meet its $20-billion target set for the last financial year.

Going forward, the Abbasi government must negotiate certain short-term borrowings from the IMF to help the new elected government to achieve a longer-term programme without which the key challenges cannot be met.

The writer is the recipient of four national APNS awards and four international best journalistic awards

Published in The Express Tribune, February 12th, 2018.