Talking business

Looks like neither the International Monetary Fund, nor the fiscal authorities of the government, are willing to put the ‘dead’ in deadline.  Last week’s brief but crucial parleys with the IMF team ended with a statement from the lending body containing all the usual words: ‘constructive discussions’, ‘progress has been made’, ‘broad agreement on the macro framework’, and so on.

But let’s face it:  the delegation did not fly into Islamabad just to reach broad agreement on the macroeconomic framework.  What exactly they came for is not entirely clear.  Power sector reforms have been grudgingly implemented halfway, tariff increases have yet to be passed through and the reformed general sales tax (RGST) will now be tabled on yet another date.  So what exactly was the IMF team doing here?

It seems like the fiscal authorities and the IMF are locked in a game of chicken.  Neither one of them is really empowered to call the relationship off altogether and neither one of them can really bring about the changes the programme calls for.

Behind the IMF stands the international donor community, led by the United States and its Kerry-Lugar disbursements that can only come through if the IMF programme remains on track.

Behind the fiscal authorities stands the political government, swatting away rumours of its demise and talk of governance failures.  After swallowing the costs of fiscal adjustment for two and half years, it looks like the political leadership is now saying enough is enough, we have fought the good fight so where are the promises of assistance?

In this high-stakes game of economic brinksmanship it is better to look past the immediate players and towards the landscape on which the game is being played out.  The IMF cannot declare the programme off track since that means severing Pakistan’s fragile link with the global economy and allowing our reserves to unwind rapidly.

For its part, the government appears to have drawn a line in the sand and said no more.  The political leadership has other priorities, each growing more urgent by the day.

There is the gratification demanded by the elected leaders who have sunk good amounts of money into winning their elections and are keen to recover their ‘investment’.  There is a wobbly coalition to hold together, under the ironies only a parliamentary system of democracy can create, where the ANP, the MQM and elected members from Fata can become the legs upon which the PPP government appears to be standing.

There is the National Finance Commission award to implement, whose real fiscal ramifications are only now becoming clear, leading to some sounds of disgruntlement coming from the Q Block directed at the former finance minister.

The list of migraines inflicting the present government is almost limitless.  In the midst of all this turmoil, the voice of the finance minister asking for structural reform of the power sector, restraint on expenditures and tax reform must sound incredibly faint, drowned out by the din of all the other demands being placed upon the leadership.

The IMF is in no position to dictate its own position in the entire affair, as evident from the fact that they are still talking to the government even after a lapse of almost five months since the promise to implement the value-added tax, to resolve the circular debt and see through power sector reforms, to restrain expenditures and stop the monetisation of the deficit.

Back in the 1990s, when Pakistan was not a strategic asset like it is today, we would have been dumped a long time back.  But in this day and age of war and terror, both parties can keep talking indefinitely.

Since both parties to the parleys are powerless to really implement the changes, or to call the whole thing off, kicking the can down the road is the only way forward.  And that is exactly what they have been doing all this time.

The only thing the IMF benefactors can do to help break the deadlock is to enlarge the carrot and hope it calls forth a more credible response from the political leadership.  But unless there is a breakthrough in the circumstances of the creditors, or the debtors, the present impasse is unlikely to be broken despite assurances to the contrary.

The writer is Editor Business and Economic policy for Express News and Express 24/7.

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