And the real economy
Pakistan-IMF interaction seems to have developed a strange pattern. And Tuesday’s “immediate disbursement” of $504.8 million is the perfect example. Once again the Fund appreciated increasing economic activity and noted “gradually decreasing” vulnerabilities. But, as usual, the 8th review of the 36-month extended facility had to approve requests for waivers of non-observance of some performance criteria, including the ceiling on overall budget deficit. There was also the customary mention of “prudent policies”, and the need to continue them, while safeguarding fiscal discipline of course.
But fiscal discipline is just a term without fiscal stability, something the Fund conveniently sidesteps in its periodic reviews. Economic activity can increase only so much when the drivers of the economy function well below par. The government has been unable to overcome the persistent revenue generation paralysis. It could not, despite campaign boasts, expand the tax net. Export earnings, too, are not likely to improve in the foreseeable future. There are no efforts in favour of value addition to the present export mix, which means earnings will remain compromised; hence the repeated requests that the Fund overlook deficit excesses.
And, of course, when the government is unable to raise revenue through traditional sources it turns to not-so-smart Eurobond ideas. Then there is the last option – the government’s favourite – which is borrowing from the international market at exorbitant rates. The long term effect this exercise has on the deficit is hardly rocket science. Instead of taking IMF’s sweet talk at face value, the government is advised to overhaul the economic engine on emergency basis. Our present economic model is simply unsustainable. We will have to improve earnings. But since that runs into the matter of political will, the N-league has few options left. It will not be able to sell this economy at the next election. Unless it is seen taking this fact seriously, and coming up with “prudent policies” that impact the people, it might lose support faster than it thinks.