The mouse that roared

Published: July 11, 2013

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The deal struck with the IMF by our finance minister, Ishaq Dar, indicates that the so-called Plan B was never there. Our newly elected government had already decided to tread the beaten path of beg now, reform never. In fact, the talk about the inevitability of the recourse to the IMF was a farce. Just look at the critical elements of the crisis at hand: a measly current account deficit of less than one per cent of GDP, an improving trade balance, booming remittances, single-digit inflation. Compare it with the crisis when the IMF was approached in 2008: a current account deficit of 8.5 per cent, an inflation rate of 25 per cent, global financial crisis, oil and food price shocks. Only the fiscal deficit is now higher — nine per cent compared with 7.5 per cent. Had the finance minister put his accountant’s hat aside while doing his budget numbers, he could easily have fixed an achievable target for fiscal deficit. Making allocations without preparing projects or programmes is bad budgeting. Avoiding the uncalled-for increase in salaries and the Benazir Income Support Programme would have kept the deficit around 5.5 per cent rather than 6.3 per cent.

What could have been done about the depleting reserves? Echoing the classic debt trap, the finance ministry was forced to borrow to repay past debts. On June 28, 2013, the reserves stood at six billion dollars. In spite of the deal with the IMF, this is what the ministry has until the first week of September. It could, therefore, have done whatever it plans to do now. To say that the IMF conditionality is essentially what the PML-N manifesto promises is an afterthought on its part. Had the main points of the manifesto been made part of the budget to send a strong reformist signal, the game would have been qualitatively different.

Like the budget, our finance ministry took the disastrous plunge into the deal with the IMF without much preparation. The final approval by the IMF board in September is conditioned upon prior actions. Before a dime is disbursed, Pakistan will have to reduce fiscal deficit to six per cent from the budgeted 6.3 per cent. Dar’s claim that no new taxation has been agreed to means that the fiscal deficit would have to be reduced by other means. First, the energy plan would now focus more on slashing subsidies than on measures to reduce load-shedding. Second, instead of improving their governance, a distressing sale of public-sector enterprises would take place. Third, the Council of Common Interests would dictate the provinces to spend less than their NFC shares, a serious challenge to provincial autonomy and an expression of donor disdain for the Seventh NFC Award. Third, any gaps left by the aforesaid measures would be made costlier to fill by a tight monetary policy. Finally, depreciation of the rupee will add to the debt burden.

A budget focused on energy, along with a short-term survival strategy, would have earned a better deal from the IMF, if one was still needed. As it is, the reform will be sold as an IMF imposition. Powerful vested interests either block reform, as in the case of agricultural incomes, or thwart legislation, as seen in the long list of exemptions in the Sales Tax, 1990. Instead of the much-abused verse from Iqbal, this deal reminds one of the 1950s movie, The Mouse That Roared.

Published in The Express Tribune, July 12th, 2013.

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Reader Comments (6)

  • asim
    Jul 12, 2013 - 2:33AM

    Both PPP and Nawaz took loans in 1990s and still getting IMF loans this means they are incompetent thoroughly.

    They are making money and agony and misery of poor people increasing

    Quote : Allama iqbal
    Chatte Batte Aik Hi Thaili Ke Hain
    Sahu-Kari, Biswah Dari, Saltanat



  • Zehra
    Jul 12, 2013 - 6:03AM

    A better title would have been The Lion That Squeaked


  • Usman
    Jul 12, 2013 - 6:19AM

    Real Actions needs Political Will, which is lacking from the PML-N.


  • meekal a ahmed
    Jul 13, 2013 - 2:37AM


    I am a bit confused with what you are trying to say.

    OBVIOUSLY a stronger, “reformist” budget would have kept the IMF at bay, at least for a while. That is self-evident.

    But that did not happen.

    Once I read the budget, like almost everyone else, I had this sinking feeling. I knew we had screwed it up AGAIN!

    We know the external current account deficit is very small. So what your point here? Because it is clear today and has been clear for some time that we cannot finance even such a small deficit. In the absence of financing and with unchanged policies, our foreign exchange reserves will continue to deplete.

    The prior actions “before a dime is disbursed” does not include reducing the deficit to 6.3% (or 6%) in 2013-14. That is a commitment. It is not even a “performance criteria” (except from the financing side). Actually, in the absence of a Letter of Intent that is in the public domain, we don’t even know what the prior actions are. Those WILL include actions before a dime has been disbursed. That is why they are called “prior actions”.

    “A serious challenge to provincial autonomy” and “donor disdain” for the NFC award? Come on, PT, give me a break. The provinces cannot be allowed to run amuck and do as they please as though they reside on Mars.

    I support fiscal devolution. But the fatal flaw in the NFC award (as pointed out by better fiscal economists than I), is that they are no fiscal rules and no conditionality that apply to the provinces in return for the billions they receive as part of the “award”.

    Since that is so, and unless it is changed and some strictures included, the NFC award has thrown the hope of even a modicum of fiscal discipline in Pakistan out the window.

    “Distressing” sale of public enterprises? I think you meant distress sale. There is nothing to suggest that this is the plan. NS and his cronies are not going to have 25,000 job-losses on their hands — even allowing for generous severance packages.

    Your comments on energy are well taken. Reducing the subsidy and doing nothing else is a bad idea even if 70% of the subsidy accrues to the rich.

    But do you think that NS will pass an order tomorrow that unpaid bills and the cost of theft and inefficiencies will be assessed and the amounts with-held at source from transfers to the provinces, starting with the Punjab where his brother holds sway? And that it will also apply to the federal government?

    I don’t think so.

    Have a wonderful evening/night.


  • PT
    Jul 14, 2013 - 12:35AM

    @meekal a ahmed:

    The article was over-edited, including the distressing bit. The printed version has confused me as well.


  • aryanazlam
    Jul 17, 2013 - 11:24AM

    Ishaque Dar was senior to me in Hailey College, Lahore. I hear discussion on the economy of Pakistan on local tv channels. people have different views. all are diversified and divergent.The base line there is no relief for the poor. I wonder why the govt can not harness the rupee dollar parity rate?


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