Pakistan and IMF’s reform agenda
Convergence of reform agendas of the government and the IMF would be a difficult task
The writer is the chief operating officer at Zalmi Foundation
These days, reform agenda is so widespread that it includes all aspects of governance, economy and social life. A number of ideas are prevalent in the market, starting from liberalising economy, reforming the tax system, tuning the trade policy, making governance participatory and accountable, introducing environment friendly and pro-poor policies, etc. Economic reforms attract more attention as they are a major issue of governance.
Pertaining to economic reforms, the IMF’s upcoming visit to Pakistan to negotiate these reforms is important. The IMF will try to make sure that the government is following the proposed set of reforms. From 1988-89 onwards, Pakistan has been on a path designed by international financial agencies. The first structural programme came with a list of reforms covering many aspects of micro and macro indicators of the economy. Pakistan revised the prices of utilities under instructions from IFIs.
Against this backdrop, how can Pakistanis expect the new reforms proposed by the IMF to work? What would be different this time that was missed in previous periods? How will Pakistan avoid previous mistakes? However, the most important questions are: What would be the converging point of the IMF and government’s reforms? And how will the reforms impact the business community?
Convergence of reform agendas of the government and the IMF would be a difficult task. Experts will have to closely observe the IMF offer and the government response. The IMF is very critical on subsidies and the current prices of some utilities and commodities. It is also not satisfied with the management of foreign exchange rate and wants to see the exchange rate completely under the market forces.
The business community and common people are already bearing the brunt of the rupee depreciation. Hike in gas and electricity tariffs is further aggravating the situation. It is leading to less options for consumption of available resources.
The situation is against the PTI’s manifesto. To improve the situation, it has launched ‘Ehsas’ programme to alleviate poverty and to improve the living standard of people. These policies will lead to increase in government’s spending combined with the IMF pressure to limit the same.
The government will have to take into confidence the business community over the IMF agenda. As an option, the business community can also be made partners in setting the framework for economic revival. The business community should be given the task to fulfil a certain level of contribution in income generation and employment creation. However, the caution is that the government should not only go for big business houses but also include the SMEs.
Fortunately, Pakistan has a cushion in the form of CPEC. The government is stated to have engaged the private sector and created a high-level business council for accelerating industrialisation under CPEC. It is a good start to engage the real stakeholders. However, the government will have to convert this council into a real time body. It is a necessary step, as with it the government will also have the backing of the business community to face the IMF conditionalities. It will give some leverage to the government to negotiate a common ground for convergence of the two sides on the reform agenda.
Lastly the government and the IMF will have to look for a common ground for moving ahead. One option can be that both sides decide on a roadmap to introduce stringent measures with development status of economy. Utilities prices can be tagged to increase in GDP and a decent rise in income of middle and lower classes. Moreover, the government can also negotiate a framework for gradual increase and decrease in government spending. As it is evident from the government priorities, like its poverty alleviation programme, the government’s spending will increase. It may seem a naïve suggestion, but we can try it, especially in the backdrop of the past failures of the IMF reforms programmes.
Published in The Express Tribune, March 31st, 2019.
Pertaining to economic reforms, the IMF’s upcoming visit to Pakistan to negotiate these reforms is important. The IMF will try to make sure that the government is following the proposed set of reforms. From 1988-89 onwards, Pakistan has been on a path designed by international financial agencies. The first structural programme came with a list of reforms covering many aspects of micro and macro indicators of the economy. Pakistan revised the prices of utilities under instructions from IFIs.
Against this backdrop, how can Pakistanis expect the new reforms proposed by the IMF to work? What would be different this time that was missed in previous periods? How will Pakistan avoid previous mistakes? However, the most important questions are: What would be the converging point of the IMF and government’s reforms? And how will the reforms impact the business community?
Convergence of reform agendas of the government and the IMF would be a difficult task. Experts will have to closely observe the IMF offer and the government response. The IMF is very critical on subsidies and the current prices of some utilities and commodities. It is also not satisfied with the management of foreign exchange rate and wants to see the exchange rate completely under the market forces.
The business community and common people are already bearing the brunt of the rupee depreciation. Hike in gas and electricity tariffs is further aggravating the situation. It is leading to less options for consumption of available resources.
The situation is against the PTI’s manifesto. To improve the situation, it has launched ‘Ehsas’ programme to alleviate poverty and to improve the living standard of people. These policies will lead to increase in government’s spending combined with the IMF pressure to limit the same.
The government will have to take into confidence the business community over the IMF agenda. As an option, the business community can also be made partners in setting the framework for economic revival. The business community should be given the task to fulfil a certain level of contribution in income generation and employment creation. However, the caution is that the government should not only go for big business houses but also include the SMEs.
Fortunately, Pakistan has a cushion in the form of CPEC. The government is stated to have engaged the private sector and created a high-level business council for accelerating industrialisation under CPEC. It is a good start to engage the real stakeholders. However, the government will have to convert this council into a real time body. It is a necessary step, as with it the government will also have the backing of the business community to face the IMF conditionalities. It will give some leverage to the government to negotiate a common ground for convergence of the two sides on the reform agenda.
Lastly the government and the IMF will have to look for a common ground for moving ahead. One option can be that both sides decide on a roadmap to introduce stringent measures with development status of economy. Utilities prices can be tagged to increase in GDP and a decent rise in income of middle and lower classes. Moreover, the government can also negotiate a framework for gradual increase and decrease in government spending. As it is evident from the government priorities, like its poverty alleviation programme, the government’s spending will increase. It may seem a naïve suggestion, but we can try it, especially in the backdrop of the past failures of the IMF reforms programmes.
Published in The Express Tribune, March 31st, 2019.