To IMF we return

So the status quo ante prevails. The tabdeeli finance minister has left for the exotic Bali island to dance to the tune of the IMF. The current situation is the cumulative effect of the uncertainty following the Panama Papers. It impacted on the external account most, with the imbalance in state finances a close second. The rupee, Dar’s darling for far too long, was losing its value and inflation, kept low by the low oil prices, was resurging with the rising oil price. External debt was rising without any addition to the repayment capacity. It resulted in rapidly falling foreign exchange reserves. In spite of these negatives, the real economy posted an 11-year-high growth rate. To a large extent, this return of growth was associated with the boost given to the investment rate by the CPEC projects.

For the sake of the country and to respect its own manifesto, the task before the government was to find an indigenous solution to the financial mess without hurting the hard-won growth. It is now clear that the hordes of upwardly mobile middle-class professionals collected by the ruling party had no blueprints ready to deal with the gathering storm. The stop-go innings played between Pakistan and the IMF since 1988 escaped their attention. They lived in the fancy world of milk and honey gushing from the overseas Pakistanis to build Naya Pakistan. There was the self-belief that the recovery of the 200 billion dollars of looted wealth only required an honest leadership. One suspects they had no clue about how the economy works, and the real dimensions of the crisis. They were made to understand “the current situation” in a month-long refresher course conducted by the mandarins of the Q block in the Secretariat. Those not part of the course were throwing spanners in the works by raising out-of-course questions. The worst case was that of the commerce adviser upsetting the Chinese, traditionally the first port of call during a crisis, by threatening to reopen the CPEC agreements. After mentioning the friendship with Iran before Saudi Arabia in his victory speech and offering to be an uninvited mediator in the conflict in the Gulf, the Prime Minister visited the Kingdom for assistance. The outcome, self-selected road to the IMF.

The road to IMF is paved with Uncle Sam’s intention to contain CPEC. No wonder, the welcome statement for our Finance Minister in Bali by the IMF Chief Economist talked of the potential risks of the Chinese involvement in the economy. These considerations, besides weak economic indicators, are likely to weigh heavily in determining whether the funding will be normal, which may be far less than our need, or exceptional which will entail some debt re-profiling to avoid use for debt servicing to China. Further devaluation/depreciation of the currency, a double-digit interest rate, fiscal deficit far below the amount in the budget just announced and hike in energy prices will be the main features of the programme. Structural reform would include major privatisations and FBR governance. A junior minister was on the same page when he spoke of using “the space offered by the bailout to undertake much delayed structural reforms”. Most likely he was echoing the “misleading economists” gathered to endorse the IMF programme, each with his (neither here nor there!) story of how past governments dodged the IMF reform. A number of crunching spin doctors has been recruited to sugar-coat the expected deceleration of growth and the return of double-digit inflation. Who needs him when the top reminded us of Dar: We are borrowing to repay past debt!

Published in The Express Tribune, October 12^th, 2018.

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