As stock and foreign currency markets respond nervously to the deadlock in talks between Pakistan and the International Monetary Fund (IMF), the government’s most vocal opponents have come forward to defend it, accusing the lender of becoming ‘political’.
Pakistan and the IMF could not conclude on time the fourth review of the $6.7 billion bailout programme due to Washington-based lender’s insistence on increasing power tariffs before its executive board meeting. The talks ended without any agreement with a resolve from both sides to continue the parleys in coming days to reach a conclusion.
The IMF is also seeking drastic changes in the State Bank of Pakistan Act aimed at giving autonomy to the institution. But this condition is not as sensitive as the rise in power tariffs in the face of ongoing political crisis, stemming from the sit-ins held by the Pakistan Tehreek-e-Insaf and Pakistan Awami Tehreek, according to analysts.
It was for the first time when both sides could not conclude the review within the agreed timeframe.
“This is not the time for the IMF to push for an increase in power prices as people are talking about civil disobedience and agitating against the government on the streets,” said Dr Hafiz Pasha, former finance minister and the most vocal critic of government’s economic policies.
“We should ensure that the uncertainty does not spread,” he added, while asking the IMF to reconsider its decision.
The Karachi Stock Exchange (KSE) benchmark 100-share index fell over 222 points (0.77%) on Tuesday, after initially plunging over 400 points to 28,416.
Similarly, in the inter-bank market, the rupee depreciated over 40 paisa to Rs100.4084 to a dollar while the decline was even higher in the open market.
“The change in the KSE index is the direct outcome of IMF talks, as Pakistan’s stock market is driven by good and bad news,” said Dr Ashfaque Hasan Khan, former adviser to the Ministry of Finance and Dean of NUST School of Social Sciences and Humanities.
He warned that the delay in conclusion of the fourth review could damage Pakistan’s reputation and lead to downgrade of the country’s international credit rating.
Saying that the IMF had become political and terming it unfortunate, Khan stressed that it was not the right time for the IMF to penalise the government for something that it was not solely responsible for.
The resolution of the political dispute could not be possible without an agreement between the competing parties, he said.
However, the most relevant remarks came from Shahid Kardar, former governor of State Bank of Pakistan. In his article in daily Dawn on Tuesday, Kardar wrote that although the IMF did not presently appear to be in a mood to pull the plug on the life support system and would continue to provide necessary funds required to service past debts, they were wondering how long this black comedy of numbers could continue.
“Will the attitude and position of the IMF harden markedly by the end of this year when the fund would have fully recovered the loans it had lent previously, also the time when US troops would be packing up to leave Afghanistan?” he said.
According to a school of thought, the IMF has so far kept its eyes closed and gave concessions in the recent past despite the fact that Pakistan was not performing well. The same school of thought, which also includes Shahid Kardar, predicted that the IMF will start raising the flag after June 2014 and things may become serious by the end of the year.
In the past three reviews, the IMF kept a soft tone despite the failure of Pakistan to meet the most critical conditions of building foreign currency reserves, net domestic assets, reduction in government borrowings from the SBP and reduction in net swaps and forward contract position of the SBP.
Published in The Express Tribune, August 20th, 2014.
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