It is ironic that the major shareholders of the IMF, the organisation in the business of making its members solvent, have debts exceeding the GDP. Even more ironical is the possibility that Pakistan, already among the top ten borrowers of the IMF, may be knocking at its doors again. In the 1960s, Pakistan was known as the most allied ally of the United States. Since the 1980s, it has become the most bailed-out baby of the IMF. The script is now well rehearsed. As a government approaches its end, the economic fundamentals begin to deteriorate and enter the danger zones with great rapidity. While those who created the mess are busy electioneering, a caretaker set-up of donors-happy technocrats comes in and reaches understandings with the IMF. After the elections, the whole thing is blamed on the caretakers, although the blamers look the other way when drafts are being run over between the caretakers and the IMF.
There are mixed signals from the government this time. Allowing rupee depreciation, contrary to former finance minister’s love of a strong rupee, was initially read as a preparatory measure to an IMF programme. However, statements made by the prime minister and the finance minister suggest otherwise. Going to the IMF just before the elections will be perceived as an admission of poor economic performance. The government is focusing on incentivising exports, restraining inessential imports, encouraging remittances from abroad, expanding the tax base of existing taxes and containing development spending by providing funds mainly for the ongoing schemes. None of these changes the structure that destabilises the economy. In an interview with anchor, Murtaza Solangi, the finance minister claimed to have done enough to survive until the end of his tenure. The morning after did not concern him. The opposition is equally equivocal. The PPP has said nothing on the subject. In an interview with another anchor, the author of “Ghairatmand Musalman” and PTI chief was evasive on the issue. Pressed to be specific, he referred the anchor to his shadow finance minister. This gentleman had predicted last year the need for another bailout, though he would look at the terms and conditions before saying yes.
Conditionality is important. Anything in the nature of slowing down CPEC will have strategic as well as economic implications. Even more important is, however, the issue of moral hazard. The IMF assistance is seen as an insurance against crises. We wait for the cure rather than institute reform to prevent crises. ADB’s former director in Pakistan sees no need for bailout package. The economy is doing well. There is no need to panic about falling reserves as the country has a way of arranging financing. The latest applicant to the IMF is Argentina. Its currency has depreciated by 18 per cent so far in the year.
In defending the currency, interest rate has shot up to 40 per cent. Reserves are depleting fast. Growth is forecast at 2 per cent and inflation is predicted at 19 per cent. What is needed, according to one member of the coalition government, is “an agreement between Argentinians” rather than an agreement with the IMF, as the “remedy could prove worse than the disease.” Here in Pakistan, the rupee depreciation is far less and inflation continues to be low. Growth rate is much higher at 5.8 per cent. Reserves have declined, but the measures to shore up are underway. Trump’s renunciation of the Iran deal has increased the risk of higher oil prices, but the need to do more for the IMF is still hard to establish.
Published in The Express Tribune, May 11th, 2018.