Stability or bankruptcy?

The extraordinary lack of fiscal responsibility shown by the provinces in announcing their free-wheeling, spend-thrift deficit budgets is an important issue at hand. As a result this year’s consolidated fiscal position is already shrouded in doubt and uncertainty. I support the idea of a summit of all concerned where the finance minister, at his eloquent best, should make a power-point presentation and present some cold economic facts. Having said that, I don't subscribe to the rather extreme doomsday scenario that Pakistan will be bankrupt in six months.

The Fund will arrive sometime in August and the authorities will trot out all kinds of excuses (some of them quite clever) for not having done what they were supposed to do. We are very good at that. Then we will tell them about this exotic new tax called the ‘Reformed GST’ and argue (always with an earnest straight face) that it will work better than the Fund-recommended VAT or the VAT anywhere else in the world and only we know that because we “sit in the trenches” close to “ground realities” whereas the Fund does not. The Fund mission will go into a funk and a long sulk, caught between a rock and a hard place. Should they turn Pakistan loose? Let it stew in its juice, twist in the wind for a while and refuse further access to Fund resources? Or should they buy the government’s new concoction and see if it will fly with Fund management and the Executive Board?

The Fund Mission Chief will probably dine with the Ambassador’s representing the G-7 countries in Islamabad (possibly also the Chinese and Saudi Arabia), brief them and get a sense of their level of comfort (or discomfort) and take it from there. Unfortunately for those who care about economic reforms the Fund will let us off the hook for the thousandth time. Three or four waivers for non-compliance will be requested in the staff report to the Executive Board, targets will be adjusted to make it easier to comply with, some reforms will be deferred to a later date, others dropped altogether and any suspicious data suggesting cooking of the fiscal books or the national accounts will be ignored.

Executive directors will make a huge fuss at the board meeting and berate us for our bad track record, the litany of broken promises and too many requests for waivers for non-adherence to targets, benchmarks, performance criteria and just about everything else that we were supposed to do but did not do on time because of "ground realities".

Pakistan, strategically located and nuclear-armed with crazies running amok — now in the heart of the Punjab — will squeak by with a majority decision (even if some executive directors reject the staff's recommendations and vote against or abstain from voting on the programme starting with the US). The other multilateral agencies will get the nod and the money will flow. We will muddle through spending merrily until the next tranche when we will request more waivers for non-compliance and the envelope of economic adjustment will be pushed further out into the future.

By the time the SBA ends it will bear little relationship to what was initially negotiated, committed and agreed to. But no worries. Since we would have not done what we should have done and done things we should not do and the program did not produce its promised macroeconomic outcomes, our ‘renowned’ economists can always blame the Fund for a poorly-designed, badly-sequenced, overly-ambitious and lousy programme that failed to take into account our ‘unique ground realities’ not found in any of the other 186 member countries in the IMF. The IMF, being stubborn just simply ‘did not get it’. That always goes down well with the Pakistani public.

Published in The Express Tribune, July 8^th, 2010.