IMF drives a hard bargain

  • Puts government in a quandary

The IMF, despite the somewhat altruistic pretensions of fostering global high employment growth and reducing poverty, ultimately remains a stern money lender with a hawk eye on safety of its investments. Member countries rush for an IMF programme or rightly ‘bailout’ from a crashing economy, especially when its balance of payments deficit turns dangerously negative and foreign exchange reserves dwindle to default levels. The sheer panic created by looming threat of bankruptcy drives the debtor country to make difficult, quick-fix compromises. If these conditions are not accompanied by urgent remedial structural reforms advised by IMF, as happened with Pakistan leaving its prior commitments unfulfilled, the economic and social situation deteriorates further, with the poorest segments of society being hardest hit. It is the concerned IMF team’s responsibility to strictly monitor a country’s economy and not grant lenient waivers, and learning from past experience, the IMF is reportedly insisting on ground implementation of its harsh stipulations before agreeing to a new structural adjustment programme.

This worst-case scenario is what stares Pakistan in the face today. All the important aspects of a vibrant economy are a total mess, with monthly current account deficit of $1 billion, abysmally low foreign exchange reserves now artificially bolstered by ‘parking’ of funds with State Bank of Pakistan by Saudi Arabia and UAE (while eyeing China and Qatar), low diaspora remittance level, exceedingly shy foreign direct investment, imports that go through the roof and exports that are scandalously slight for a country with vast and diverse natural resources and infrastructure. The electricity circular debt has rocketted to Rs1.2 trillion! Seeing the country’s all-round financial mess, perhaps the worst of its history, the ongoing talks with the IMF have unsurprisingly run into snags, with a wiser lender now laying down ‘steep’ pre-conditions involving sharp bridging of revenues and expenditure, free floating exchange rate, even higher interest rates, and cuts on current expenditure including debt servicing, defence and subsidies. However, while alternate government measures in the shape of raising exports, FDI and inward remittances will definitely make a huge difference, an IMF programme remains the only meaningful recourse, as it also allows a fund-strapped regime to tap other international sources of financing.