IMF: Will it, won’t it

First it was the Prime Minister gloating over improvements in cherry-picked indicators of the economy. Then there was his Adviser on Finance and Revenue with a look of ecstasy on his face: “Good news is pouring in from all four sides and we need to protect it from coronavirus and build on it.” As all the economic cheering up happened during the pause from the Extended Fund Facility (EFF) of the IMF, he might have hoped to protect the economy from the IMF as well! Fiscal and credit concessions to the sectors beginning to look up, tax amnesty and the entire construction package front-loaded for job creation, housing and growth revival, not forgetting increasing pork barrel expenditures and technical supplementary grants, were hardly the variations on the EFF themes. Indeed, the IMF did the unusual thing of providing emergency Covid-19 financing in the amount of $1.4 billion in April. It was disbursed quickly, no questions asked. This was a significant contribution to the current account surplus that gladdens so many PTI hearts.

Why are they waiting for the IMF to return and resume the stalled EFF, especially when the incidence of Covid-19 is rising again? Technical discussions with the IMF have continued all this while to bring back the second review. While the Adviser expects the visit of the IMF technical team any time, the IMF itself has described the discussion as “fluid” and the meeting, if any, has to be virtual as per SOPs. There are two sticking points. First, the tax collector must pursue a higher target. Second, the tax system needs to be reformed. Every IMF programme in the past attempted to fix these very areas without any movement to write home about. In the present setting, the net result of any move forward will be to scuttle economic revival being claimed from the rooftops. A major contribution to the economic revival has been made by subsidised electricity. This will drown under the wave of energy reform prescribed by the IMF to deal with the circular debt. Prices, already touching the Himalayan heights, will produce an army of the first time poor on top of the mass that already exists and persists.

One sticking point not mentioned by the Adviser is the issue of the autonomy of the State Bank of Pakistan. A summary moved by the Governor sometime ago and sidelined by the Ministry of Finance reflected the IMF requirements in letter and spirit. Amendments were sought in the State Bank Act to introduce five-year renewable term for the Governor, an exclusive focus on price stability in its objectives, discontinuation of Finance Secretary as an ex-officio member of the Board of Directors and the abolition of the Monetary and Fiscal Coordination Board chaired by the Finance Adviser. When inflation rises as a result of meeting the requirements of the EFF in the fields of taxation and energy, the EFF-liberated State Bank will raise the policy rate. This will be the proverbial last nail in the coffin of the much-touted economic revival.

So why would the IMF be welcome? When the ministers tell the public that the government was forced to borrow huge amounts to service debts contracted externally by the corrupt and money-laundering rulers of the past, they are only admitting that the country is in the throes of a debt trap. The IMF seal of approval is necessary to keep borrowing externally. With no strategy in place to reduce debt, this self-declared incorruptible government too will leave the country in a debt trap bigger than before.

Published in The Express Tribune, November 20^th, 2020.

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