How not to negotiate with the IMF

Published: July 4, 2013

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Negotiating a programme with the IMF has always been very difficult for Pakistan. More so, when we are seen to be desperately discussing an urgently needed bailout package. That is why, perhaps, the ongoing negotiations in Islamabad had seemed so difficult. To understand these difficulties, let us step back a little. During the election campaign, the venerable Sartaj Aziz had said: “Right now, you can’t reach an agreement with the IMF because the kind of conditions they would impose on you would not allow you to grow. But if our economic revival package starts working in two months, three months’ time, and it is clear that exports are picking up, our revenues are going up, then you need much less adjustment than indicated by the present situation.”

Dar ignored this sane piece of advice. First, he presented a budget with a deficit of 6.3 per cent. There is no way the IMF could stomach a fiscal deficit target beyond four to 4.5 per cent. It could have been fixed around five per cent anyway if: 1) the government had not increased the Public Sector Development Programme by 50 per cent to accommodate its politically motivated programmes; 2) it had not surrendered to the bureaucracy’s demand to increase salaries and pensions by 10 per cent; and 3) eliminated tax exemptions on its own. Instead of finalising its own energy plan first, the IMF was allowed to dictate the end of power subsidies within a tight time frame. It does not take kindly even to the lifeline tariff for the smaller consumers, the preference being for conditional cash transfers. Unfortunately, the State Bank of Pakistan also made a political statement by announcing a cut in the policy rate at a time when core inflation is still running above headline inflation. Worst of all, the finance minister announced on the floor of parliament that Pakistan needed the new IMF loan just to repay the earlier loan from the same institution. By implication, the intent was not reform but access to ready cash.

Like the hero in Punjabi films, he unleashed a series of economic barhaks from the word go. “Programme or no programme, we shall not impose further taxes.” It was pointless to make a request, if this was a non-negotiable position. The IMF knows enough about the capacity of the Federal Board of Revenue to reject the position that it can collect the desired revenue by toning up its administration. Millions of dollars poured in it by donors have made little impact on its governance. The SROs, lax audits and the slow pursuit of cases against tax delinquents are part of a culture that defies all reform.

Dar said he would negotiate, not beg. There was a needless invocation of national interest. In the same breath, he warned that the country could be reduced to a banana republic if the IMF did not help. The thought that he could negotiate without being flexible, bordered on the ridiculous. “I need six months to turn around the economy, but my problem is that the country has to return a substantial amount to the IMF soon,” he went on to claim. While there is no magic wand to turn the economy around in such a short span, a sounder budget and an austere balance of payments, together with some elements of the so-called plan “B”, would have provided the breathing space to stabilise the economy. It would have also prepared better ground for negotiating a deal with the IMF. However, the PML-N’s structural weakness — a bias against taxation and towards imports — has come in the way. It had promised an economic blast. What we have, thanks to Dar’s irrational exuberance, is an IMF drone. Is it any wonder that Secretariat Block Q was declared out of bounds to the media?

Published in The Express Tribune, July 5th, 2013.

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Reader Comments (26)

  • Alami Musafir
    Jul 4, 2013 - 11:39PM

    It is very sad to see a nation with the potential energy that Pakistan has, perpetually kneeling at the starting block, while other nations, who started off with much less, have raced ahead. Here we are, squabbling over scraps fallen from the US (or Chinese) dining table, or going cap in hand to loan sharks when our preoccupation should be industrialisation of Baluchistan, gasifiction of Thar coal and other money spinners. The potential of such projects are in the tens to hundreds of billion US dollars, inclusive of spillage (losses to corruption).

    Pakistan leaders really needs to get out of their baniya / shopkeeper mindset and think like the Tatas and du Ponts. The paltry IMF handouts pale in comparison with the riches possible.


  • Sundas
    Jul 5, 2013 - 4:01AM

    Increasing public sector development programmes by 50%..solely to accomodate politically motivated programmes and tax exemptions… the worst a government could do. Ashamed of the leaders the country has elected.


  • Polpot
    Jul 5, 2013 - 4:47AM

    @Alami Musafir: “Pakistan leaders really needs to get out of their baniya / shopkeeper mindset and think like the Tatas and du Ponts.”
    As a Baniya I protest. We Baniyas have never gone to IMF , that too to borrow to repay earlier loans. Pls apologise immediately.


  • asim
    Jul 5, 2013 - 6:28AM

    It is up to the people to take destiny in their own hands and overthrow these rulers who are responsible for the sucking the poor peoples blood


  • truthbetold
    Jul 5, 2013 - 8:15AM

    @Alami Musafir:

    our preoccupation should be industrialisation of Baluchistan, gasifiction of Thar coal and other money spinners……Pakistan leaders really needs to get out of their baniya / shopkeeper mindset and think like the Tatas and du Ponts.”

    Pakistan’s priorities, or preoccupation as you put it, was set a long time ago to become a security state with the officially stated priorities of “we will bleed India through 1000 cuts in a 1000 year war and we will eat grass to get the Islamic nuclear bomb”. The effects of which, you see today. Tatas and du Ponts don’t have such national priorities and don’t want to fight a 1000 year war with nation.

    So, the problem is one of national priorities. Endless policy of geopolitical confrontation with a neighbor with a 12 times bigger economy will only end with one result- the “1000 cuts and bleeding to death victim” will only be Pakistan.


  • Haider Hussain
    Jul 5, 2013 - 9:23AM

    Ironically, in it press release, IMF team stated that “the budget FY14 is a step in the right direction”!!!! Couldn’t have been more idiotic a statement.


  • MOF
    Jul 5, 2013 - 11:16AM

    Most of the time the purposed reforms are in our long term interests and we should be doing something about them anyways, conditions or no conditions. Unchecked deficits in due course of time bring down the most resilient of economies. We with our economy and geostrategic position should be doubly careful.

    In principle at least deficits and debt should be used only in extreme unavoidable circumstances and not a matter of course as we have made them.


  • Yousaf Bajwa
    Jul 5, 2013 - 11:20AM

    Increasing public sector development programmes by 50%..solely to accomodate politically motivated programmes and tax exemptions…

    Well people voted them for this and thats what they are getting….Shair ko Vote Diya hai tu Shair banoo Ab… You will get Roads and metros but Jobs and education i am sorry we never promised it.


  • Poor Indian
    Jul 5, 2013 - 11:33AM

    Although the title of the opinion piece is apt, Mr Dar and his team, in reality, had no space to negotiate with the IMF. To quote our famous poet Kaifi Azmi sahib, “bik gaya jo, who kharidaar nahin ho sakta’.


  • Alami Musafir
    Jul 5, 2013 - 12:39PM

    My apologies. I used the term baniya as opposed to Baniya, to distinguish between the Vaishya caste of Baniya and the Urdu/Hindu pejorative term for a miserly smallholder who lacks vision and whose members collectively form the South Asian Petite Bourgeoisie.


  • Polpot
    Jul 5, 2013 - 3:07PM

    @Alami Musafir: Thank you for your gracious response.
    And look forward to more of your contributions here.


  • Quantum
    Jul 5, 2013 - 7:23PM


    Very well said Sir. Mr Dar is not qualified to run Pakistan’s economy. They can hire me as a consultant, I can do a better job :)


  • Quantum
    Jul 5, 2013 - 7:31PM

    @Poor Indian:

    What an astute observation. Hats off to you sir.


  • Jul 5, 2013 - 8:16PM

    I completely agree. Dar is behaving more like a politician than economist. He focuses more on convoluted rhetoric than laying down a roadmap of how, and to where, he wants to steer the economy. All he is heard saying to the IMF is, “it’s the public”, and to the public is, “it’s the IMF!”.

    I would not be amazed if in a few years from now, he apologetically echoes PPP, shifting the blame to the ‘circumstances’ his government inherited.


  • unbelievable
    Jul 5, 2013 - 8:42PM

    Nice article. I am always amazed at how many comments imply the IMF are bad guys or that a stronger leader would turn down the IMF or make a better deal – clear signs that govt has done a poor job of explaining why IMF loan is necessary. Further – what exactly has the IMF required that is “bad”? Levying taxes on the rich? Cutting subsidies that you can’t afford? Seems to me that IMF “conditions” are basic economic policies that are used by most of the World with great success – we all live within our means – why should Pakistani govt be the exception.


  • David_Smith
    Jul 5, 2013 - 9:03PM

    Actually India did go to the IMF in 1991 after bankrupting itself following an externally funded, consumer spending growth.
    @Alami Musafir; you’re a gentleman, Sir


  • Realist
    Jul 5, 2013 - 9:26PM

    When did Dar ever say that he’s an economist?

    He is a chartered accountant by profession so his knowledge of Pak’s problems couldn’t be better than our previous economic managers!

    It is called trial and error – where basically we have more error than trial and the result of that is our mismanaged economy!!


  • excalibur
    Jul 5, 2013 - 9:28PM

    why be parochial in not having the honesty that the IMF Drone was downed only once and that too on Musharraf’s watch, Never before nor since in the entire history of Pakistan

    USD at Rs 59 and now at 101 is the litmus proof as well. Ateast call a spade a spade


  • excalibur
    Jul 5, 2013 - 9:53PM

    @ Realist

    Since when have Munshis ( accountants ) replaced economists to make the Budget ?

    Dar had fudged up figures officially submitted to the IMF in the past and we had to officially apologise for that IMF knows him too well

    Again the money laundering trail in Nawaz ‘s case was the handiwork of Dar ling again


  • meekal a ahmed
    Jul 6, 2013 - 12:53AM


    Some good points. But with a starting position of a fiscal deficit of around 9% of GDP in 2012-13 (and even that is a preliminary figure), even the IMF would not want you to go to 4-4.5% in a single year!!

    I have not seen the program details but the 4-4.5% deficit figure you mention is a target to be achieved at the end of the three year EFF.

    Assuming we get to the third year — or even the second year! Any bets on that?

    I wish all these pretend-economists would learn to think before they speak.


    Officially apologize?!!

    You must be kidding. We paid a fine running into millions of SDR’s since IMF money was drawn while we were consistently non-compliant with “performance criteria”.


  • excalibur
    Jul 6, 2013 - 8:05AM

    @ meekal a ahmed

    Just pull out the records or get in touch with Dr Ishrat Husain ,Director IBA who was the Governor of State Bank on Musharraf’s watch . You will get the exact details and the dozens of stipulated meetings under the IMF for compliance follow ups and how Pakistan remained on top in each single one of them without exception

    Give credit where it is due.without being biased and in denial of facts


  • meekal a ahmed
    Jul 6, 2013 - 2:43PM


    Above you talk of data fudging by Dar during his previous tenure as FM; now you talk of the Mush era and how wonderful our “compliance” was.

    Which “record’ am I to look at and what is your point?

    Our general record of “compliance” with IMF-financed programs has been quite shoddy. You are not complying if you ask, in a program context, for multiple waivers for non-compliance! Look up our record and then tell me whether I am biased and in denial of facts.

    You are welcome to e-mail me if you want to discuss this further.


  • excalibur
    Jul 6, 2013 - 3:39PM

    meekal a ahmed

    You just need to look up the facts available in the public domain. Since the inception of Pakistan IMF has been a millstone around our necks. One regime taking loans and looting it, running up debts for which another IMF loan is taken to pay of the accrued debt.

    It is like using one credit card to settle another credit card outstandings .Dar is doing the same.
    Musharraf/ Shaukat Aziz were the first to break the IMF begging Pakistan’s history of a disastrous debt servicing ratio.

    To further stem the plunder, Musharraf encouraged a legislation in the Parliament that henceforth no loan can be taken unless ratified by it. This law was undone by the last government and the result in terms of astronomical debts incurred is for all to see.

    As for compliance, there are periodically scheduled meetings required by IMF and under Musharraf not one of them registered any non compliance and entailed in Pakistan saying thank you to IMF and good riddance. But we are now back to square one


  • excalibur
    Jul 6, 2013 - 4:10PM

    @ meekal a ahmed

    For your info compliance meetings are quarterly For the 2000 -2001 Standby facility all the four quarterly reviews were successful in compliance After that the 3 year PRGF had 12 review meetings and noted full compliance and for the last two Pakistan declined to avail of any balance instalment

    Before this solitary period Pakistan was known as a I Tranche country which surrendered with non compliance and no structural reforms ever after misappropriating the funds received and begging for yet another bailout package to avoid default and becoming a failed State.

    Also no role in Musharraf’s success was attributable to the quantum of US funds which were largely a reimbursement of expenses incurred by us on their behalf.


  • meekal a ahmed
    Jul 6, 2013 - 11:38PM


    OK, I see “where you are coming from”, as the American’s are fond of saying.

    Are you an economist as well as someone who knows something in regards to Pakistan-IMF relations?

    Since you have a phony log-in name, I don’t know who you are.

    But never mind.

    While I am always open to new information that may suggest that I was wrong (I hope, God forbid, that I never gave the impression that I was always right), please don’t be condescending. I know about “quarterly reviews” and “compliance”, based on 15 years as Senior Advisor to Executive Director, in the IMF.

    In that regard, here is a story that you may find interesting:

    When Dar was briefly FM under the new Zardari government in 2008, to extract revenge (or so it seemed since Shaukat Aziz had ratted on him ten years earlier), one of his first acts was to start digging up the dirt on “compliance” with the SBA and PRGF during the Mush era (I was told that Dar denied this when asked in the Senate).

    But when I heard of the muck-raking, I sent an e-mail to my very good friend in the MoF (his name shall remain a secret) who was tasked with digging up the dirt, and pleaded with him NOT to open a can of worms.

    Because, if he proved (as he was tasked to do) that we had been cooking-the-books under both the SBA and PRGF during the Mush years, there would have been an investigation, and we would have had to return millions of SDR’s to the IMF as penalty for “mis-reporting” — as we had done before.

    Fate intervened, the PML-N and Dar left the government, my very good friend went home, the matter was, and remains, buried, and I heaved a sigh of relief.

    There has been a lot written on the wonder years of Mush. You should read some of it.

    Have a great evening.


  • excalibur
    Jul 7, 2013 - 1:37AM

    I can only sympathise with IMF if Executive Directors still need Senior Advisors like you ( if that is true to begin with )

    How come you are not aware of the compliance meetings ? As for Dar he was the first FM even for the PPP govt ( But quickly absconded citing the same excuse s as he parrots today )
    If you really have any IMF link as you claim you would also remember the MoF letter dated November 18,2008 submitted by ShaukatT areen to the IMF in Dubai which claimed all the structural reforms of Shaukat Aziz;s as credit and based only upon that the IMF agreed to give bakshsish to PPP govt

    As for Musharraf / Shaukat Aziz I challenge you to bring up any thing against them in this forum
    Casting aspersions will not do.


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