At the request of the government, an IMF mission is visiting Pakistan to initiate discussion for a three-year bailout program. As reported in the press, during their two weeks of stay in Islamabad, the IMF team intends to meet leaders of various political parties to solicit their support on the structure and conditionalities of a ‘new’ IMF program.
This visit begs many questions. Is this an appropriate time to invite the IMF mission to discuss a new program? What kind of commitment will the present regime give to the IMF for a new program? Will the new government adhere to the agreement? What if they want changes in the structure and conditionalities of the program? Why should major political parties agree with the structure of the program when their representatives are not part of the negotiating team?
These are all valid questions. First of all, the timing of the visit of the IMF team is highly inappropriate. The country is in the grip of extreme lawlessness. On the domestic front, the Quetta blasts, occurring on January 10th took the lives of 130 innocent Pakistani brethren and set off a wave of protests across the country. In the capital, the Long March led by Dr Tahirul Qadri has had the authorities scrambling to seal off Islamabad to prevent participants from entering the city. Across the border, tension between India and Pakistan is on the rise over the violation of the ceasefire at the Line of Control
Only an insane leadership would invite the IMF to negotiate a Program in the midst of such extreme polarization and so perilously close to the end of its tenure. The purpose of inviting the IMF appears to little more than a tactic to stall the economic crisis that has been building up for sometime. Foreign exchange reserves witnessed a further decline last week despite the injection of $688 million from the United States under the coalition support fund. A heavy debt repayment, amounting $500 million is due next month, which is bound to put pressure on exchange rate. By inviting the IMF, the government intends to calm the market so as to survive till March 16, 2013.
The current economic team has lost its credibility. Their own political leadership has even distanced themselves with the team. The economic team negotiating with the IMF does not represent the people of Pakistan either. The team is even technically incompetent to negotiate a program because they have no understanding of the ground realities. Therefore, any commitment made by the team may not be binding with new political leadership.
In several columns over the last one and a half years (for example September 20th and 27th, 2011), I have been suggesting to the government and its economic team to negotiate a program with the IMF but to no avail. During this time, much water has flown under the bridge. The government continued to pursue a highly irresponsible spending policy to ‘buy voters,’ doling out budgetary resources and jobs to ‘win’ elections. In the process, it has not only destroyed the institutions but totally defaced the economy of Pakistan as well. Negotiating a program with the IMF in such a vulnerable position will be extremely painful for the people of Pakistan.
The IMF, on its part, should have realized the inappropriateness of the timing. The incumbent regime and other political parties are in the midst of their election campaign. Islamabad is sealed off and the IMF team is confined to their hotel. The economic forecast presented by the Pakistani authorities would be meaningless because of the rapidly unfolding political events and upheaval in the country.
If the desperate Pakistani team does make commitments with regard to resource mobilization, expenditure rationalization, abolition of subsidies, privatization, power sector reform, provincial finances, strengthening of tax administration, autonomy of the central bank etc, who will ensure delivery on these commitments?
As reported in the press, the IMF team intends to meet the leadership of major political parties to get their support on the agreed conditionalities. Why should other parties support the program? None of their representatives are part of the negotiating team from Pakistani side. They have no knowledge either about the true state of the economy or issues discussed with the IMF. Why should they sign on dotted lines?
Five years of fiscal indiscipline, bad macroeconomic policies, weak and frivolous economic team and misgovernance have totally ravaged the economy. There are no two opinions within and outside the country that Pakistan’s economy has never been in such a bad shape as it is today. Moreover, the writ of the state has almost vanished.
It is therefore inappropriate on the part of the IMF to negotiate a program at this stage for the following reasons: (i) only a few weeks are left before the end of this government’s tenure; (ii) the current economic team has lost its credibility and their own political leadership have distanced themselves from the former; (iii) the incumbent regime and other major political parties are in the midst of their election campaign and as such are in a different state of mind; (iv) no major political parties would sign on dotted lines; (v) there is no guarantee that the commitments made by the discredited economic team in a desperate condition would be adhered to by the new regime, and (vi) the economic forecast presented by the current team would change significantly with the rapidly evolving political situation in the country.
Timing is important in policy making. The government has wasted one and a half years in entering into negotiations with the IMF. Never take a decision in haste and in a vulnerable position. This is the only sage advice I can offer to the current discredited economic team as it embarks on this doomed mission.
The author is Principal and Dean, NUST Business School, National University of Sciences and Technology, Islamabad. E-mail: [email protected]