IMF programme: ‘We tried, we failed, we give up’
Having failed to honour yet another agreement with the International Monetary Fund (IMF), Pakistan has abandoned its efforts to seek a restoration of the $11.3 billion bailout programme, which had been suspended last year.
A key government official told The Express Tribune that Islamabad would no longer request the IMF to send a review mission, a preliminary step that could ultimately have led to the revival of the programme, after recognising “harsh ground realities.”
The official said that Pakistan has also decided not to push ‘friendly countries’ – a reference mainly to the United States – to pressure the IMF into restoring Pakistan’s bailout programme.
However, there are still some officials in the finance ministry who believe that Finance Minister Abdul Hafeez Shaikh should use his personal relationship with David Lipton – former advisor to US President Barack Obama and newly appointed deputy managing director at the IMF – to seek such a restoration.
(Read: Islamabad mulls new IMF strategy sans US support)
It is unlikely that Lipton would be able to help, though. The decision on whether to restore the programme must be taken by the IMF collectively and no single individual can sway the decision one way or another.
The premature end of the most recent bailout programme confirms Pakistan’s image in the international financial community as a ‘single tranche country’ – a nation that applies for a bailout and then fails to live up to its conditions, leading to a suspension of payments after the release of the first tranche.
Since 1988, Pakistan has sought bailouts from the IMF 11 times and failed to complete all but one of them. The one signed in December 2001 was completed ahead of schedule.
“It will be a setback to Pakistan’s image and the policymakers will be known as the ones with a non-serious attitude,” admitted one high-ranking economic policymaker.
The current programme was signed on November 24, 2008 – at the height of the global financial crisis – and was originally meant to last 23 months. It was originally meant to be only $8 billion, but was later expanded. The deadline was also extended, first for one month and then for a further ten months to allow Islamabad more time to implement reforms.
Five tranches worth $8 billion have thus far been released, with the last tranche coming in May 2010. The last two tranches, worth $3.4 billion, remained undisbursed after the government failed to live up to its commitments on reducing the budget deficit and introducing fiscal reforms and energy sector reforms.
The programme will now end in suspension and be remembered as a “failure”, confessed an official at the Planning Commission.
Following this colossal failure, however, the government may plan on seeking a new IMF programme, according to one senior government official, to pay back the loans from the first programme. The country’s financial position is expected to begin deteriorating sharply in February 2012, when several loans are due for repayment.
The government is planning on asking the IMF to send a mission for consultations, a right to which any IMF member country is entitled under Article IV of the IMF charter, regardless of whether they are in any programme.
According to a finance ministry official, the consultation would send a signal that, despite its failure to reform, the government is still committed to remaining engaged with international lenders.
Performance under the programme
When Pakistan started the programme, inflation had just hit 25.6%, the budget deficit was projected at 7.4% of the total size of the economy and foreign exchange reserves would barely cover six weeks’ worth of imports.
During the first year of programme, the budget deficit came down to 5.2% of gross domestic product, still higher than the IMF-approved limit. In fiscal years 2010 and 2011, the deficit has been 6.2% and 6.5% of GDP respectively, bringing the three-year average to above 6% of GDP and far beyond what would be acceptable to the IMF.
Foreign exchange reserves have risen to $18 billion. But if one removes the effect of the IMF loan and aid from friendly nations, the central bank’s foreign exchange reserves would drop to more or less the same level as 2008. Inflation is still in double digits.
The government was required to increase the tax-to-GDP ratio but, at 8.5%, it is the lowest it has been in 27 years.
Published in The Express Tribune, August 13th, 2011.
COMMENTS (37)
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@proudpaki: but we are proud nation arent we.. we wont take the money being paid for the lives of our people surely.. reject the money... we can stand on our own two feet no matter how crippled they are
Pakistani politicians are good at politics, not at governance.
well, that deficit is because of 800 million USD being withheld by US treasury against Pakistan's claims against WOT.
@Anjum
You bought the equipment -- and whether it was made in Pakistan isn't relevant. As far as your corrupt politicians -- you voted them into office and if that's not the business of Pakistani people then what is? In short -- repay the loan.
If there is no bail out from IMF and if no further billions are forthcoming from US, then I foresee 24-hour power cuts in a few months time.
Time to fix up an appointment with immigration lawyers !!
Since when US became a friendly country? Army knows about this?
@Krishna: Economic growth numbers are always on paper. When an economy grows at 9%, it doesn't mean everybody suddenly is 9% richer. India's growth will take another 30 years to reach the impoverished villages. It is a slow process and unlike China, India is more transparent. Nobody claims that India is a rich nation. But I'd rather have my nation growing than going backwards.
@BruteForce: IMF is not in the business of "rescuing" fiscally-irresponsible nations. They help promote development and aid socially-relevant projects. Ireland, Greece and now Italy are neck-deep in the stuff because they didn't bother to balance their accounts. IMF has no responsibility to them.
Don't worry. Once Pakistan finishes building/purchasing 5000 nuclear bombs, 20,000 missiles, 2000 jet fighters, 200 Erie-eye radars, 500 new cantonments and 50 submarines more money will be available for economic development and help grow the GDP. People need patience until then. National security is Pakistan's #1 priority.
@ HQ - you have to be kidding yourself. Our politicians are probably better at covering up lies than any other country's politicians but we have so many failures that the truth was bound to get out. Where in Pakistan do you live? Do you know anything about how much the average person is struggling? It's only due to Pakistani expats that the nation has any FOREX reserves. Us Expats are tired of sending back massive donations and not seeing any results. We can only support Pakistan to a certain extent - even we have bills to pay back abroad.
@ Cautious - yes, Islamic values insist that we pay back the money we have borrowed. We are not supposed to accept charity yet many of the Ghariat brigade are hypocrits with double standards.
China is going to give nothing to Pakistan. They know Pakistan has no ability to pay back the loan and the Chinese are much harsher than the Americans. The Americans have treated Pakistan with kid gloves thus far.
In think the actual cause of this mess is due to the inability in implementing the checks and controls in managing the borrowed money amid widespread corruption. If the loans are rightly spent then it should generate the results to profit thereby accomplishing the objectives of getting them in the first place.
I had commented on ET more than a month back that since Pakistan was continuesly spoiling its relations with US, IMF would stop aid to this country who is under the direct influence of US. The all weather friend of Pakistan will now be tested but chances of receipt of bulk aid from China is extremely remote. Pakistan will be under lot of pressure since it may not be able to pay even salaries to its Govt servants and inflation and prices will rise further. However, if Pakistan decides to tow US's line, it can still hope to receive US and IMF aid.
@DR AHMED,
"No country in the planet has ever stood on its own feet due to IMF. "
Please stop speaking without even an attempt to research what you are saying.
India too was in massive balance of payment crisis in 1990 and approached the IMF for a loan. Guess what- 20 years later India is the fastest growing nation in the World.
The difference really is the presence of a stable Democracy in India and the lack of it in Pakistan(Democracy without Civilian supremacy is not Democracy).
@RealityCheck,
"Please name one non-european that IMF been able to rescue out of so called economic slump."
Yes, I can name one Country and that Country currently is the fastest growing economy in the World and Pakistan's next door neighbour - India!!
India was in a bad situation in 1990 and was forced to approach IMF to fulfill its commitments. The IMF laid out a plan to start the reforms in the Indian economy, just like it did for Pakistan. The only difference is India followed it and treated that loan very seriously.
So, what does that tell you about Pakistan?
@Ali Turk: Pakistan can do without US aid and now IMF aid?? Don't kid yourself. Economic collapse is just around the corner. IMF was really Pakistan's last hope. Wait till the stuff hits the fan.
IMF is not NBP that loans are extended on "personal relations" as mentioned in the article.
In case you conveniently forget -- you still have a large loan to payback -- failure to do so is tantamount to theft especially when you knowingly negotiated terms that you were unwilling to fulfill (deceit on loan application is cause for jail term in most of the World).
Show some class for a change -- payback the loan -- if that requires spending less on the military, police, politicians or raising taxes then do so - or ask your "all weather" friend for the money.
@BruteForce: I think its time Pakistan should be asked to manage its ownself... with most the people condoning acts of violence it is alot better that the nation be let on its own to face the reality.
Rana,
The program signed in 2001 was not completed ahead of schedule. There is no such thing. What the government did was not draw on the final tranche.
HOW that program was completed will remain an enduring mystery until we undertake a careful review of it -- especially the numbers.
The annual Article IV consultation (health check) is a requirement. We are obliged to hold it. No big deal. However, the staff's recommendations are not binding on us.
As someone above said, if we can't implement the last program how are we going to implement a new one? And will the new program be easier than the last one? That is highly unlikely. Any new program will also come with PRIOR ACTIONS, meaning measures to be taken BEFORE the program goes to the IMF Executive Board for approval.
Knock some sense into yourselves guys. Do you actually think its "Pakistan" as a country that runs on American Aid and IMF funding???
The IMF begs our politicians to accept its aid, to make Pakistan follow their instructions of imposing unnecessary taxes on its people, frustrating the people in return. If it hadn't been for IMF's unnecessary funding, the inflation rate that has adversely effected the lives of millions of middle and lower class Pakistanis would not have been so high. IMF's funding doesn't run Pakistan, it just keeps our leading Politicians in their pockets for their perusal.
Snap out of it! This money comes in to fill up the pockets of the wickedly corrupt politicians only. Not one IMF funding has brought any good to Pakistan. Neither has the American or any foreign Aid. To date, 80% of the Pakistani population lives in villages, they still live on barter and hardly ever use up cash. The politicians, the State bank and the Federal Govt. might be running out of funds, but our people are not empty.
Pakistan is neither a failed state nor has its economy halted. Yes, our Politicians are a failure, but then which Politicians aren't a failure.
"Failure is everywhere, be it UK, US, India, Israel, its just that Pakistani politicians can't cover it up as well as the other politicians in the world." - H.Q.
This shud be taken as a blessing in disguise....this shud enable us to stand on our own feet...??
@Mirza: Do you know that Saudi Arabia, UAE and China are all contributers towards IMF and they willl require guarentees for return of any money given including interest.
@Righton: Financial realities of today are quite different.. if US can be down graded then Pakistan is not super power or economic power house. Argentina was in comparison to Pakistan a powerhouse. If we default and rupee goes in a spiral just imagine the misery that awaits. It will be like Zimbabwe then
@faraz: Note that the loan was initiated in 2008 barely 3 months after Musharraf left. So Musharrag was just lucky that he was around when the whole world economy was booming and PPP came when the whole world's economy had crashed. Also while he was around (until August 2008)the significant adverse turnaround had already started.
How will IMF give a new loan when the conditions of the existing loan have not been met? If they give a new loan it would surely have to be tied to prior implementation of conditions. Since the ability to do that does not exist...
Also for the people that refer to the exports and remittances - sure there is no balance of payments problem in Pakistan but there is a liquidity problem where the government is not going to have the money to pay its debts come February. The exporters money and remittances are not revenue for the government that can be used to pay off debts. So referring to those as a solution is misleading.
India's economic progress is all on papers. The fact is that the people of India are living under stress due to economic woes. Each year, increasing number of farmers commit suicide. The only people benefiting are the rich and the vocal few that works for the rich.
The real question is when will the chickens come home to roost?
Maybe a default like the one in Argentina will wake the country from financial slumber... But since we are sleeping on so many fronts maybe not!
It is time for the nation to break the begging bowl and stand on its own two feet. The Ghairat Brigade who has been against the Western interference should come out with sacrifices. Let us see how much Pakistani philanthropists (some claim Pakistan to be most charitable nation) would contribute to offset this IMF refusal? Let us get some help from our all weather friends like Saudi Arabia, UAE and China instead of big bad wolf America!
The FM and team working under him failed the nation. This failure happened under his watch. He should quit .Being nice is one thing,managing the economy of a country under stress requires different skill sets which evidently are missing.
I suggest the FM should get a round-table of all stakeholders and chart a short / medium term course for the country and so that the economy is steered out of low growth/high inflation trajectory.
In some ways IMF programme was bad and placed un-realistic conditionalities.
With high level of foreign remmitance and exports ,if Pakistan manages it's spending, we could do without IMF programme.
PPP government's handling of the economy is extremely poor; they are utterly clueless
so we accepted that we are a failed economy? I suspect as permanent beggars we were not even entertained any more by international donors. Whoever see us, goes other way. We have descended in permanent darkness.