Still elusive
The self –imposed 100 days deadline almost over the PTI (Pakistan Tehreek-e-Insaf) led government is yet to get its act together. Especially on the economic front there is confusion worst confounded.
The prime minister during the period has made quick dashes to Saudi Arabia, China, UAE and Malaysia ostensibly to get financial assistance in order to have less reliance on a yet elusive IMF loan bailout. Khan’s logic simply being that lesser the size of the IMF package the better it is for Pakistan.
The nature and the terms of assistance barring Saudi Arabia are still shrouded in secrecy. Riyadh has already deposited $1 billion in Pakistan’s State Bank with $2 billion to follow in order to shore up its reserves. Similarly Islamabad will get oil from Riyadh on deferred payment worth $3 billion for the next three years.
The credit goes to the government for successfully negotiating this package at a time when the de facto ruler of the kingdom Prince Mohammad Bin Salman (MbS) is in big trouble owing to the gruesome murder of dissident Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul. Fingers are being pointed at MbS for sanctioning and planning the assassination.
Khan claims that the Chinese have given adequate assistance to Pakistan as a result of his recent visit. However he contends that the terms and size of Chinese assistance cannot be disclosed lest other countries also demand concessions on the same lines from Beijing. Similarly apart from MOUs (Memorandum of Understanding) and agreements for joint economic cooperation nothing is much known about the kind of assistance offered by the UAE.
The just concluded first round of talks between the IMF and Pakistan have remained inconclusive largely owing to tough conditions imposed by the international lending agency. Since 1958 virtually every government including the military regimes have been recipients of IMF largesse. And rarely has any government successfully completed its programs with all their appended conditionalities.
That is why in the IMF corridors Pakistan has the unsavoury reputation of being a one-tranche country. Perhaps one of the few exceptions was the last PML-N government that successfully completed the program it had negotiated in 2013 soon after coming into power. It is another matter that the government accumulated expensive debt in order to shore up its foreign exchange reserves.
The IMF praised the economic policies of the last government to no ends. Ironically now it is castigating the same economic managers for their ineptness. Perhaps there is a kernel of truth in the perception that the judgment of the lending agency is tainted by exogenous considerations.
For example in order to reduce the burgeoning circular debt that has crossed the Rs1 Trillion mark it wants the GOP (Government of Pakistan) to further hike electricity tariff by a whopping twenty percent. The circular debt was accumulated owing to the flawed policies of the PTI’s predecessor governments. The IMF can also be blamed for conveniently papering over the endemic problem.
The international lending agency also wants a flexible market driven exchange rate. Fair enough. The past government by throwing expensive dollars in the market kept the value of the rupee artificially high. This voodoo economics (or rather Darnomics) of the exiled former finance minister Ishaq Dar did inexorable damage to the economy.
Another condition is full disclosure on the nature of Chinese loans to Pakistan. In the backdrop of what the US Secretary of State Mike Pompeo said a few months ago, the IMF loans cannot be used to retire Chinese debt. Owing to the present state of strained Pakistan-US relations this is not surprising.
Islamabad has made it amply clear that the Chinese loans under CPEC (China Pakistan Economic Corridor) were secured at a relatively low rate and their repayment is not due as yet. Nonetheless the IMF feels that as the ultimate lender it has the right to have an answer to such questions.
Hence it is quite obvious that this time the IMF loan condtionalites are going to be front-loaded. This would mean that policy reforms as per the lending agency’s demand would have to be announced before any amount is disbursed.
No one is willing to invest in Pakistan. The penchant for bringing back looti hui daulat (looted money) back to Pakistan is having the opposite effect.
The question that begs an answer here is that if Pakistan can get money from elsewhere why go to the IMF at all? But as they say better late than never; most of the condtionalites in the long run are good for Pakistan’s economy.
Who can argue with the logic that the tax net from barely less than one million taxpayers should be expanded? Furthermore, that after devolution under the eighteenth amendment provinces should also chip in to run the federation.
The IMF package is also needed so that Islamabad can go back to international development agencies like the World Bank and Asian Development Bank (ADB) for development assistance. Pakistan also needs the bailout package to shore up its sagging international credit rating.
Nevertheless it is a Hobson’s choice for the government. How much it can further burden the already impoverished population with further hardships in the form of higher taxes and tariffs resulting in manifold increase in inflation with its appended consequences?
Hopefully the prime minister is fully aware that merely securing loans will not be enough to restart the stalled engine of growth. Nor blaming the previous government for all the ills plaguing the economy will help.
The buck now stops on his watch. Hence the onerous task of reviving the economy rests upon the shoulders of the present economic managers. Whether the finance minister Asad Umar and his team are up to the job, the jury is still out.
But more urgently Khan will have to change his tack if he really wants to usher Pakistan into his promised era of prosperity. Starting from him his information minister to the NAB National Accountability Bureau), the FIA (Federal Investigation Agency), and higher judiciary brands everyone with money as crooks and thieves. Owing to the vitiated investment climate, the government has already lost in the perception game.
No one is willing to invest in Pakistan. The penchant for bringing back looti hui daulat (looted money) back to Pakistan is having the opposite effect.
Unsurprisingly, foreign direct investment (FDI) on year on year basis has fallen by 55 percent. When the local investor is shying away adopting a cut and run policy why would foreign investors chip in?
The prime minister while addressing Pakistanis in Malaysia has announced a four-pronged policy to cut debt and shore up investment. He rightly pointed out the impediments of doing business in Pakistan and promised that an office will be established in the PM House facilitate foreign investment.
Hopefully he fully understands that merely opening an office will not be incentive enough for investors. For that the government will have to review its present strategy. Of course bureaucratic hurdles should be removed but more so the PTI should tone down its incendiary rhetoric.