Amid reservations over Pakistan’s ability to take tough decisions in an election year, and broken promises of the last financial package, Pakistan and the IMF held discussions in Washington on the state of the economy and the financing required for averting a fiscal crisis next year.
The finance ministry claims that it has managed to secure commitments to the tune of $5.27 billion from the US, the UK and international financial institutions over the next four years. No further details were reported, however, concerning this supposed financial influx. For instance, what proportion of this money will be in the form of aid, or else in the shape of loans adding to our existing debt burden, is not clear. According to a recent IMF report, Pakistan’s external financing requirements will be much higher in the even more immediate future. In the next fiscal year, Pakistan’s estimated requirement to help manage its fiscal deficit is $10.5 billion. Out of this amount, $4.3 billion will be needed just to pay off prior IMF debts. Being an entity which is primarily in the business of lending money, the IMF does have an evident motivation to lend us more money, even if to pay back its earlier loans. The details of the new IMF lending programme are still not clear though. Perhaps, the IMF will approve fresh credit or else it may rollover repayments.
The last government had claimed with much fanfare that our nation had managed to finally break the begging bowl of IMF loans. However, the incumbents were compelled to return to the IMF when the Friends of Pakistan began dragging their feet on provision of promised aid. But then the PPP-government-requested IMF programme worth $11.3 billion also ended prematurely with $3.4 billion not being disbursed. This was because the PPP failed to ensure central bank autonomy, as well as failing to reform the energy sector and ensuring implementation of the reformed general sales tax. All these unimplemented conditions will probably be reasserted as conditionalities within any new financial assistance package.
Yet our finance minister maintains that the international financial institutions have confidence in the Pakistani economy, since the World Bank has approved an unprecedented lending surge for financing development projects. This is despite the less than enthusiastic IMF and World Bank assessments, which do not consider Pakistan’s short- and medium-term prospects to be looking too good. The rising commodity prices, a probable surge in oil import costs, and impending deadlines on the payment of external debt are expected to sharply diminish the existing foreign currency reserves, which the government keeps boasting about. Rather than a newfound faith in the capability of our financial planners, perhaps a more relevant reason for Pakistan securing a fresh IMF package may be the softening stance of the US towards our government. The IMF lending will probably give a signal to the World Bank to continue extending loans to Pakistan as well.
Some recent press reports, citing undisclosed officials, have suggested that a new programme with the IMF may be signed before the end of the current year. This means that the present government will have to begin implementing reforms immediately after the coming budget. The question is, if the current government will be capable or even interested in implementing tough belt-tightening measures just before the general elections? Furthermore, the IMF will surely seek guarantees to try and ensure that the terms and conditions agreed and signed by the present government are implemented by the new government, and it may even wait to sign a new programme until then.
Besides the apparent underlying imperatives of using international aid to achieve geostrategic goals, and helping the present government keep the domestic economy afloat around election time, one wonders what greater good the IMF lending will achieve. Surely, a prerequisite for this latter objective is to transcend the myopic approach of international and domestic policymakers, and take a harder look at the actual prospects of maximising more equitable growth, even if that means contradicting typical neoliberal assumptions.
Published in The Express Tribune, May 10th, 2012.
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