Has international community written off Pakistan’s over 60 billion Dollars debt for its commitment to war on terror? Has Pakistan discovered new oil wells to get rid of heavy oil imports? Have we got a solution to our crippling energy crisis? Has our GDP growth rate reached an overnight double digit target? Has US Dollar significantly decreased with respect to the Pakistan Rupee in the currency markets? It is unfortunate to say that the answers to all these questions are in the negative.
The question arises then is why Pakistan has abandoned the loan programme of the International Monetary Fund (IMF)? The reasons are more political than economic and this has not happened for the first time. Earlier regimes including Pervez Musharraf and Nawaz Sharif during their respective tenures, in their quest for political leverage, made tall claims to smash the ‘begging bowl’ but what happened thereafter is known to all of us. Every time we shouted a hollow slogan of self-reliance, a desperate Pakistan headed to IMF and other donor agencies with a bigger bowl thereafter. So, in effect our half hearted bids to self reliance left us in the quick sand of debt deeper than before.
Pakistan has availed itself $7.6 billion of the $11.3 billion IMF loan to avert a balance of payments crisis and meet its international debt obligations. This loan package was connected to pledges and provisions that Pakistan will have to restructure its tax revenue system, re-energise its energy sector and to play its role in reducing the financial deficit. But the government in place could not deliver on these fronts pushing IMF officials to get stricter in issuing the remaining payment of $3.40 billion in 2012. Therefore, failure to convince IMF on the part of government led the Fund to delay the release of the outstanding amount.
It is clearly evident that government has spurned this aid (only temporarily) on political grounds instead of taking account of economic realities. Pakistan has to pay $1.4b to the IMF in calendar year 2012 as repayment of the 7.2 billion dollars Stand by Arrangement (SBA). Government has devised its own short term strategy. They will start repayment from their own resources most likely from the foreign exchange reserves next year. In case the party in power is re-elected in the coming elections, the first thing to do will be the restoration of IMF aid for at least another five years. However, if they lose the election, they will enjoy watching the tough struggle of next government to come out of the mess.
The decision of saying good bye to IMF has been taken at a time when floods have devastated large parts of Sindh where millions have been driven out of their homes and cotton crop, sugarcane and vegetables have been drastically affected. Pakistan’s call for international aid has not resulted in major inflows due to the trust deficit and stories of rampant corruption in aid. Analysts fear that the fiscal deficit will balloon in the coming months and Pakistan will need huge funds to fight flood losses.
If the government is truly sincere in its commitment to say a firm no to the IMF, it has to demonstrate its dedication to solve the energy crisis without further delay. To achieve that, there are a number of basic steps needed to pull the country back on track. For instance, bringing corporate governance, making required changes in regulatory frameworks, ensuring recovery of bills from the public and private sector, tackling electricity theft by powerful elites, taking measures to ensure capacity utilisation (that is 40 per cent below capacity) on a short-term basis, upgrading the existing system, and ensuring that the energy crisis is resolved on an urgent basis.
IMF and our reliance on foreign aid
