THE cat is out of the bag but has not yet landed on the ground. It is still floating in the air. After having met all the conditions of the IMF — so says the finance minister — the bail-out hasn’t come. Pakistan needs $ 6 billion to pay its external loans and interest by the end of June. It has only $ 4.2 billion in the coffer. The GOP (Government of Pakistan) has not yet given up hope. Although the FM was confident that Pakistan could sustain the pressure and would not default without an IMF loan, it is still trying to obtain the much-needed tranche of $ 1.2 billion from the IMF. The pertinent question is that even after following up on whatever the IMF told this government, why is there still no approval from the IMF? The answer to this question lies in the past 22 dealings with the IMF.In the past, many governments had adopted deceptive approaches with the IMF — giving wrong economic figures about revenue and progress. Further, the governments would agree to the conditions of the IMF momentarily — on paper only. Once the loans got approved and transferred, they retracted the agreed terms. From the loaned money — after paying out the due obligations — the remainder got exhausted on subsidies and non-development expenditures. Much of it got wasted on pilferages. The result was that Pakistan could never develop the economic capability to sustain its future commitments. Each year, it had to go back, knocking on the door of the IMF for new funds to survive. That generated consequential mistrust between the government of Pakistan and the IMF.
The primary objective of the IMF is to help develop cash-stricken nations to generate their resources so that their economies can sustain external financial payments and enhance their GDPs. That, however, never happened in Pakistan.This time, the GOP adopted similar tactics of the past. The incumbent government took over the country’s reins by boasting tactics and experience to handle the IMF and set the economy right. The FM — Mr. Dar — had proudly bragged about manipulating the IMF in his favor. His statements were tantamount to making the IMF bow down to his request for money on the conditions of the GOP. That hubris didn’t go well with the IMF representatives — triggering their strong reaction. Perhaps what Mr. Dar failed to anticipate was that the IMF, too, had been well prepared, learning through the conniving tactics of past governments. Furthermore, Pakistan was never serious about conducting its negotiations to implement reforms on a long-term basis and taking the terms of the IMF seriously. From the very onset, its approach was — as in the past— to find a short-term solution — a temporary bailout. All it aimed was to pull itself out of the impending default on its external payments.
So the IMF laid bare its conditions — obstinately emphasizing their implementation on the ground in kind and spirit — before the decision to approve the bailout package. IMF refrained from indulging in the cat-and-mouse game. Pakistan’s government claimed it met all the demands put forward by the IMF, and many of them did get implemented — as was evident from the skyrocketing inflation and the massive surge in the Dollar exchange rate. Still, the IMF didn’t seem impressed — stalling the much-awaited bail-out loan. The reports are that the IMF had put forth more demands that included taxation of the agriculture and trading sectors. Taxing agriculture meant taxing the feudal lords — those already sitting in the majority in the National Assembly. One may bring into the tax net anyone, even the impoverished masses, but the feudal lords! No way. It was asking virtually a ferocious cat to put a bell around its neck. Has the IMF gone crazy? No, it hasn’t. A source in the finance ministry stated that such conditions were demanded in the past also. The previous governments agreed in principle but never put them into practice. All the excuses were given to the IMF, like; prevailing turmoil — economic and political — the GOP was not prepared to execute such conditions — however, these will be enforced in the future once the situation stabilizes. But the IMF didn’t budge from its stand. That led the Minister of Finance to announce — mainly to mitigate the anxieties of the business and trading communities that the country would not default in the absence of an IMF loan. It meant two things: First, there would be no IMF loan, and second, the government must meet its external obligations through its local resources. It raised many eyebrows.
With declining revenues and remittances, reduced exports, and swirling Dollar exchange rates, how will the government manage it with just $ 4.2b in the kitty and no other foreign aid in sight? The requirement for external disbursement stands at $ 6b by the end of June this year. China has rescheduled its loan of $ 2b that would help marginally to avoid default. Although this will be a Herculean task, it is not something that can’t be achieved. One way is to plan seriously, cut the non-essential development funds, cut down all the imports except for the essential raw materials, boost the exports, and remove the general subsidies on staple food, petrol, diesel, gas, and electricity. It will be imperative to increase the taxes and increase the central bank interest rate. The government will need extra courage to dare taxation of the agriculture sector and the traders marginally.
—The writer is contributing columnist with keen eye on current affairs, economics and technical issues.
Email: mushtaq.jan@gmail.com
