The ‘home-grown recipe’
The recourse to the IMF was simply inevitable. Pakistan borrowed nearly $8 billion from it under the standby facility during 2008 and began repayments in 2011. The amount together with interest must be repaid by end 2014. Almost $5bn must be paid between March 2013 and end 2014. That the government would be back in the IMF parlour was a foregone conclusion. What the PML-N failed to do was to prepare the public opinion for the challenges emanating from this decision. Instead it took recourse to rhetoric like breaking the begging bowl. This happened not only during the election campaign but also after winning the elections when it was repeatedly claimed that the PML-N government would not borrow on terms that run counter to national interest. Important government leaders continued to claim that they would be ‘looking the IMF in the eye’ and not take dictation and only accept financing based on our home-grown recipe.
There should have been no doubt that the common man was going to be made to bite the bullet on account of the tough conditionalities that the IMF was likely to impose. There was going to be a hike in power charges affecting practically all. With subsidies on energy withdrawn and a devalued Pak Rupee the natural short-term outcome would be an upsurge in inflation amidst an environment of low growth and inadequate employment generation. The direct and indirect impact of the hike in the GST rate was bound to lead to a universal rise in prices of goods and service charges. The Fund would demand that the clauses of the previous programme that Islamabad failed to meet should be treated as ‘prior actions’ before it is prepared to loosen its purse strings. Before a formal loan approval by the IMF Board, Pakistan will have to take fiscal actions, implement an energy plan that is acceptable to the lenders, reverse the present monetary policy direction and commit to restrain provincial expenditures via the centre’s oversight. The last is going to be nothing short of a Houdini act in view of the constitutional amendments that safeguard provincial autonomy and the fact that two provinces are being ruled by the opposition parties. There was therefore a need to prepare the general public for the harsh impact of the terms. This was never done.
The Finance Minister has now asked the heads of 16 European diplomatic missions to persuade the IMF to extend a $7.3 billion loan programme instead of the $5.3bn offered by it. What is likely to stand in the way is Pakistan’s past performance. European representatives on the IMF’s executive board will not take kindly to any leniency to a prolonged user of the Fund’s resources with an abysmal record of failing to complete 10 of 11 programmes, hence being labelled as a “one-tranche country”. What is more the fund is already overstretched in Europe. It remains to be seen if the suggestion receives serious attention.
