How about practicing some austerity?
This is the ugly face of the IMF’s lending philosophy, the tough conditions invariably embedded in their aid programmes add to the common man’s economic plight. So it was with Pakistan when it was again compelled to the Fund’s support to avoid a possible default. However, this time the IMF included another proviso, in that the total $6.7 billion loan was not to be disbursed upfront but in twelve equal tranches, the release of each installment dependent on the conditions set being met. Talk of rubbing one’s face in the dust, just for the low interest rate. In practice, the hyperactive judiciary has challenged some of the steps taken by the regime in deference to the IMF’s wishes, such as the steep rise in electricity rates which badly hurts the ordinary man and breeds inflation, and has set itself up as a shield between the IMF and the people. Whether this and the overall performance of the economy in the immediate post-programme period would affect the release of the next tranche of $550 million will be clear only after the discussions are held regarding financial targets with the IMF review team arriving in Pakistan on Oct 28.
Now for the bad news! First, the country missed the foreign exchange reserves target set by the Fund by about $800 million. The SBP governor admitted that $25 million was being funneled out by the country daily, and the Bank made a feeble but futile attempt to shore up the sinking rupee by buying dollars from the open market to meet the shortfall. This put the rupee under pressure, causing it to lose seven percent of its value against the US currency, and the parity is expected to depreciate further by June 2014 to Rs113 to a greenback. Only on Oct 11, Forex reserves stood at paltry $4.1 billion. Former finance minister Hafiz Pasha predicts that the situation will deteriorate further in November when US$700 is due for repayment to the IMF, with no inflows. The reserves threaten to decline to $3.3 billion by the end of Nov, insufficient to finance imports even for a month.
This is a harrowing scenario indeed, and it must be causing the PM sleepless nights. His victory smiles after the elections vanished soon enough to be replaced by a perpetual frown. But there is one aspect all our rulers have studiously ignored – austerity, a Spartan austerity. India is already taking steps to balance the economic impact of the fall of the Indian rupee against the dollar by reducing its oil import bill by US $20 billion through educating the public. Unfortunately for us, austerity is apparently a Greek word, but unless we practice it, we risk turning into another financial disaster like contemporary Greece.
