Difficult times

After a push by the US, Pakistan has agreed to the IMF proposal of clubbing the fourth and fifth reviews of the $6.7 billion Extended Fund Facility. The government had earlier turned down the offer to club the incomplete fourth review with the fifth, hoping that the IMF would approve the $550 million loan tranche despite it being unable to implement the economic reforms it had promised to the international lender. The conditions — which included increasing power tariffs by seven per cent, privatising state-owned entities and other critical reforms — have wedged the government into a corner where it fears public backlash on account of increasing the tariffs.

Clubbing the fourth and fifth reviews, which would then decide the approval of the fifth and sixth loan tranches, respectively, would mean that Pakistan is likely to get $1.1 billion in December, but only if it meets specific conditions set by the IMF. However, if it meets those conditions, the government will end up alienating the public because they involve taking hard decisions that are not populist such as cutting subsidies on power. On the other hand, keeping the public happy means distancing the lender. Therefore, the present development is not, by any means, a win for the government.

At a time when Pakistan is desperately seeking to mitigate its power crisis, flood damage, bear the military operation, facilitate the internally displaced persons, eradicate polio, educate the masses, patrol the border and move towards economic prosperity, it can ill-afford giving up the massive inflows that have kept its foreign exchange reserves stable. Despite the failure to implement the promised increase in power tariff and the problems being faced on the privatisation front, Finance Minister Ishaq Dar nevertheless sounded confident when he stated that Pakistan would get the $1.1 billion in December. Someone needs to ask him how this will come about. This is a difficult time for a government that seems content in adopting a wait-and-see approach.

Published in The Express Tribune, October 15^th, 2014.

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