Pakistan is knocking again at IMF’s door
A superpower with a strong dollar as international currency can prosper while spending more than it earns but a poor country like Pakistan cannot. All the more so when overspending becomes an addiction with the ruling elite. Furthermore, having good time with borrowed money cannot be prolonged year after year. A time comes when the reckoning begins. IMF’s Post Programme Monitoring (PPM) team is currently in Islamabad to do the job. Pakistan reportedly needs another bailout. The IMF is apparently not going to oblige as willingly as it did in 2008 when the advent of an elected government had inspired hopes of better financial discipline.
Hafeez Sheikh might have been correct when he maintained in his address at the Carnegie Institute that the country inherited dismal growth rates, double-digit inflation, record deficits, and a crippled financial market. Musharraf regime also failed to initiate any significant project to add to the national power grid. Had the new government gone for austerity measures to pay off the circular debt, at least the power shortages would not have been so severe. With industry in a working condition, the export sector would have fared better, bringing in more foreign exchange. Circular debt, which had touched a Rs 232 billion mark, did come down to Rs 176 billion, but only because of new loans from banks through issuance of fresh Term Finance Certificates. However, it is once again rising.
Pakistan has paid IMF seven instalments worth $1.14 billion out of a total of $2.58 billion as part payment of Stand-by Arrangement from forex reserves maintained by the State Bank of Pakistan (SBP). The Bank’s reserves are thus rapidly depleting. The government failed to abide by some of the vital undertakings given to the IMF in 2008. These included an end to subsidies in the power sector. These instead climaxed to a whopping Rs 554bn in FY11-12. The government also agreed to bring all important categories of taxable incomes into the tax net, put an end to loopholes in tax collection and withdraw the discretionary powers of the FBR. As the details about the tax returns of the members of parliament indicate, the virus has also affected those supposed to oversee the implementation of tax laws. Pakistan’s tax revenues are therefore only 9.1 percent of the GDP, one of the lowest in the world.
The IMF has enforced harsh conditionalities to improve the ailing economies of some of the European countries. Will it apply different standards while dealing with Pakistan? Those who still pin hopes on a fresh bailout point to Pakistan’s improving relations with the US. It is questionable if the US would intervene this time. It is equally questionable if IMF would yield to the pressure.
