Asrar Raouf looks at the dwindling relationship
Imf Deal in Jeopardy – It is widely acknowledged that International Monetary Fund (IMF) is the representative institution of the prevalent global financial system that provides financial succour to the economies of states that suffer from acute imbalances existing within their monetary and fiscal operations. Pakistan has entered into almost two dozen IMF programmes since the last half a century but failed to achieve financial sustainability and economic performance required to keep its economy afloat. Despite financial bailouts and stringent efforts undertaken by the IMF, Pakistani economic system resisted structural changes and kept on hurtling along the path of entitled behaviour ignoring the negative consequences such conduct entailed. Pakistani entitled-driven political ruling class took the IMF in a stride and many programmes with it were left incomplete right in the middle because these programmes pinched upon their privileges which they refused to abandon. Bound by the regulations it operates under, IMF could not ignore requests for bailout made by its members and since Pakistan is a member therefore it had to come to the rescue of its economy when it is in distress and did do that many times. However, with the passage of time IMF became acutely aware of the hit-and-run attitude of successive Pakistani economic managers and its attitudes gradually hardened its attitude towards providing financial assistance to Pakistan and the current inflexible stance taken by it reminiscent of its cumulative experience of dealing with Pakistan.
It is just a few days before the Extended Fund Facility (EFF) agreement with the IMF signed by Pakistan is going to expire and all hopes of its revival are fading. Despite maintaining a stance bordering on bravado the incumbent economic team is definitely worried as was proved when the finance minister flared up when a journalist asked him whether the efforts to revive the IMF programme have failed or otherwise. Though the finance minister is sending feelers that the coalition government has also prepared a Plan-B in case the parleys with IMF fall through but the government is desperate to achieve a breakthrough with the IMF. Pakistani PM has been reported to lobby with diplomats of influential countries presenting the point of view of the coalition government with a view to act as interlocutors between Pakistan and the IMF. It was pointed out that the coalition government tried its maximum to fulfill conditions laid down by the IMF for completing the due review including bringing about a mini-budget amounting to Rs.170 billion increasing electricity and gas tariffs, increasing interest rates and leaving the exchange rate at the market forces.
It was also mentioned that only outstanding issue was the external financing gap that was also settled during a telephonic conversation between the prime minister and IMF Managing Director but the gaps still remain between the positions taken by Pakistan and the IMF, particularly on the issue of amendments in the proposed budget, hike in the monthly stipend of the Benazir Income Support Programme (BISP), increase in petroleum levy rates and correction in the foreign currency market. Pakistani economic managers state that the external financing gap has been bridged due to marked improvement in the current account deficit and point out that as against the IMF’s estimates of a $7 billion annual deficit the deficit was only $2.9 billion during the first 11 months of the current fiscal year. It was added that the State Bank has pointed out that the current account showed a surplus of $255 million in May and as a result, during the July-May period of the current fiscal year, the current account had only a deficit of $2.94 billion compared to a deficit of $15.16 billion in the same period of the last fiscal year and this very fact has so far avoided Pakistan to default.
It is now learnt that IMF appears keen to complete the 9th review subject to the fulfillment of the pending actions that include bringing the proposed budget in line with the programme objectives and also withdraw the $100,000 tax amnesty scheme. The IMF has also asked Pakistan to give an inflation-adjusted increase to the 9.3 million beneficiaries of the BISP. The government’s view is that it has already increased the stipend by 25%. The IMF has also asked the government to increase petroleum levy by Rs.10 to Rs.60 per litre. The IMF wanted the provinces to provide iron-clad guarantees for generating cash surplus. The situation is quite serious as it is predicted that in case the IMF programme is not revived then it will cause a severe dollar shortage in the first half of the next fiscal year and possibly for longer that may significantly raise the odds of default. The other consequences of non-revival of the programme would result much lower growth and higher inflation and interest rates. It was added that between July-December, Pakistan must repay an additional $4 billion, which cannot be rolled over and with foreign exchange reserves standing below $4 billion default seems highly likely. Most conspicuously it was mentioned that negotiations with the IMF on any new bailout are not likely to start until after elections in October.
The financial position of the country, particularly of the foreign exchange levels is so dire that the economic managers were constrained to seek some kind of intercession by America for the revival of stalled IMF programme. Interestingly, it was reported that American policy makers were more keen to find out what measures Pakistan plans to take if the programme is not renewed indicating that they do not expect revival of the programme and also that they would prefer knowing about any alternate plan Pakistani managers have in store. It is reported that this may be the policy perspective of the American policy makers to learn what cards are held back by Pakistan because the incumbent finance minister is consistently insisting that the coalition government will manage the country financially afloat even without IMF support though this assertion is not supported by any viable measures, and if such measures were in hand, then this is the most opportune time to unveil them as the failure of the IMF programme appears pretty certain.
It is reported that owing to the government’s inability to get the IMF programme revived, Pakistan’s ability to secure foreign loans from multilateral and bilateral creditors has shrunk by over 62.3 per cent in the current financial year as it could only Islamabad could only secure $8.6 billion in the shape of loans and grants in the first 11 months against an envisaged target of $22.8 billion for the whole financial year 2022-23. The current situation is that the financial year is virtually drawing to a close but Pakistan could hardly obtain $9 billion whereas in the preceding year Pakistan secured loans amounting to $13.5 billion. It is apparent that the trust deficit between Pakistani economic managers and IMF has widened to such a degree that its appears very difficult to bridge it this time around and it appears that with the kind of attitude exhibited by the current finance minister it may be next to impossible to repair the damage done in the process. Deeply distressed the Pakistani economic managers have pinned their hopes on the meeting of PM with MD of IMF and expect that something positive would emerge out of it. The Weekender