The Fund and I
It will be a tense meeting, the next one between the government’s financial mandarins and the IMF. Deferred earlier upon the former’s request so that they could get their statistics ready and now, on account of the empty top slot at the central bank, no pleasantries are to be exchanged there. Why? Because of our bad report card.
To explain: the Fund’s $11.4 billion loan program doesn’t work as simple as their wiring us this not-so-insignificant sum over. It is, rather, to be delivered in a series of tranches, prior to each one of which there has to be an evaluation. Unfair, someone asks? As long as we’re paying back the money, it is demeaning for us to be treated like some sort of cretin who needs to be supervised constantly? Maybe. But consider the circumstances under which the loan was taken. When the new government had had a look at the books left by the Shaukat Aziz regime, it realised it needed money and needed it fast; they didn’t have enough cash to even stay afloat. And they needed this money in very bleak global financial circumstances. At the time, we would have taken the money with any conditions that the Fund might have thrown our way. Luckily, these conditions were ones that were to be policy decisions in any case. At least that was the government’s spin.
The next tranche, upon which hinge $1.8 billion, is to be the sixth review of our economy. Why these are going to be tense meetings is that the government has breached the targets for the fiscal deficit and borrowings from the central bank, in addition to not reforming the general sales tax to exclude the exemptions that were made for largely political reasons. This is not the first review in the current loan program that we haven’t had a satisfactory report card. Matters are made worse considering that the government is widely believed to be planning to ask the Fund for even more loans; a request unlikely to be accepted, given our track record.
This state of affairs is, at any rate, a vindication of the school of thought within the country that did not disapprove (celebrated, even) the IMF’s close watch on our financial affairs; it is the only way, they claimed, to ensure discipline on shaky governments that are unwilling to take uncomfortable decisions for fear of political backlash.
Expect increases in the rates of the utilities, a removal of subsidies and – despite how much the political parties of the bazaar might scream bloody murder – a reform in the taxation system. To enforce these decisions is the unfortunate fate of any political party that happens to be in government.
