IMF — saviour or serial lender?
'Many of the countries seeking IMF help do not end up fixing their economies'
'Many of the countries seeking IMF help do not end up fixing their economies.' PHOTO: REUTERS
Since 1958, Pakistan has availed 21 IMF programmes. This means that on average, we have had a programme every three years during the last six decades. If it tells us one thing, it is that this medicine is not working.
Let’s look at Pakistan’s most recent love affair with the IMF. The last $6.68 billion programme concluded in 2016, with claims about the country’s successful exit from an economically-troubling phase. The government stood tall on $18+ billion forex reserves, rebounding economic growth, controlled budget deficit and curtailed inflation. From the surface, it all looked fixed. The only problem was that the underlying problems still prevailed.
The recent talks with the visiting IMF mission failed to conclude but the discussions revealed that besides usual adjustments in the macroeconomic indicators, the IMF’s focus is on ‘strengthening the performance’ of state-owned enterprises (SOEs) and eliminating their losses, further increasing gas and power tariffs to ensure cost recovery and eliminate circular debt, reducing power thefts, protecting ‘the more vulnerable segments of society’ and strengthening social protection through improvements in the Benazir Income Support Programme (BISP), and ensuring that provinces contribute to the consolidation efforts by taking responsibility of the BISP.
It is an eye-opener to read the IMF country report on Pakistan’s request for funding from 2013, laying out the design for the IMF programme back then. The programme committed to enhancing tariffs to cost recovery levels, tackling electricity theft, improving energy sector governance, privatising or restructuring SOEs and reducing their losses, protecting the poor and most vulnerable segments of society by expanding the BISP’s coverage and ensuring that provinces contribute to the consolidation effort.
Ironically, one can hardly spot a difference!
We stand exactly where we were five years ago. The medicine cured the symptoms but not the disease. The circular debt that stood at Rs500+ billion in 2013 is now nearing Rs1.2 trillion. The ambitious privatisation programme was reduced to a handful of insignificant transactions. No SOE was restructured and most importantly no meaningful step was taken to avert future current account deficit.
While on the one hand, it shows that the last government definitely failed to deliver on any of these counts, it also makes one wonder how come the last IMF programme concluded successfully without fulfilling all these conditions. In fact, many of these commitments conveniently fell victim to exemptions, cosmetic changes and political considerations.
Is Pakistan an exception which, despite availing 21 programmes, still needs yet another IMF programme and where harsh conditions end up being exempted?
A 2015 research paper by Harvard Kennedy School on the IMF’s 70-year history reveals the Fund’s ‘serial lending’ pattern, highlighting that more than 25% of member countries have had an IMF programme 50% of the time since they became an IMF member, while 37% of the countries have been on IMF programmes 40% of the time or more. Furthermore, over the last few decades, the IMF’s lending to member countries has substantially increased. The median IMF programme in 1970s used to be less than 2% of the recipient country’s GDP, but now accounts for 10-16% of the recipients’ GDP. The paper also emphasised that politics and ‘more importantly alignment with the US’ play a key role in IMF lending decisions and in enforcement of its conditions. This shows that many of the countries seeking IMF help do not end up fixing their economies but rather get addicted and over time need even more of such help.
An IMF programme is now hard to avoid. But what the government needs to focus on is curing the disease this time and not just treating the symptoms or else we’ll again be knocking on the IMF doors in 3 to 4 years with a request for an even larger programme.
Published in The Express Tribune, November 27th, 2018.
Let’s look at Pakistan’s most recent love affair with the IMF. The last $6.68 billion programme concluded in 2016, with claims about the country’s successful exit from an economically-troubling phase. The government stood tall on $18+ billion forex reserves, rebounding economic growth, controlled budget deficit and curtailed inflation. From the surface, it all looked fixed. The only problem was that the underlying problems still prevailed.
The recent talks with the visiting IMF mission failed to conclude but the discussions revealed that besides usual adjustments in the macroeconomic indicators, the IMF’s focus is on ‘strengthening the performance’ of state-owned enterprises (SOEs) and eliminating their losses, further increasing gas and power tariffs to ensure cost recovery and eliminate circular debt, reducing power thefts, protecting ‘the more vulnerable segments of society’ and strengthening social protection through improvements in the Benazir Income Support Programme (BISP), and ensuring that provinces contribute to the consolidation efforts by taking responsibility of the BISP.
It is an eye-opener to read the IMF country report on Pakistan’s request for funding from 2013, laying out the design for the IMF programme back then. The programme committed to enhancing tariffs to cost recovery levels, tackling electricity theft, improving energy sector governance, privatising or restructuring SOEs and reducing their losses, protecting the poor and most vulnerable segments of society by expanding the BISP’s coverage and ensuring that provinces contribute to the consolidation effort.
Ironically, one can hardly spot a difference!
We stand exactly where we were five years ago. The medicine cured the symptoms but not the disease. The circular debt that stood at Rs500+ billion in 2013 is now nearing Rs1.2 trillion. The ambitious privatisation programme was reduced to a handful of insignificant transactions. No SOE was restructured and most importantly no meaningful step was taken to avert future current account deficit.
While on the one hand, it shows that the last government definitely failed to deliver on any of these counts, it also makes one wonder how come the last IMF programme concluded successfully without fulfilling all these conditions. In fact, many of these commitments conveniently fell victim to exemptions, cosmetic changes and political considerations.
Is Pakistan an exception which, despite availing 21 programmes, still needs yet another IMF programme and where harsh conditions end up being exempted?
A 2015 research paper by Harvard Kennedy School on the IMF’s 70-year history reveals the Fund’s ‘serial lending’ pattern, highlighting that more than 25% of member countries have had an IMF programme 50% of the time since they became an IMF member, while 37% of the countries have been on IMF programmes 40% of the time or more. Furthermore, over the last few decades, the IMF’s lending to member countries has substantially increased. The median IMF programme in 1970s used to be less than 2% of the recipient country’s GDP, but now accounts for 10-16% of the recipients’ GDP. The paper also emphasised that politics and ‘more importantly alignment with the US’ play a key role in IMF lending decisions and in enforcement of its conditions. This shows that many of the countries seeking IMF help do not end up fixing their economies but rather get addicted and over time need even more of such help.
An IMF programme is now hard to avoid. But what the government needs to focus on is curing the disease this time and not just treating the symptoms or else we’ll again be knocking on the IMF doors in 3 to 4 years with a request for an even larger programme.
Published in The Express Tribune, November 27th, 2018.