IMF’s do more tantrums?
OSTENSIBLY, the developing world is seriously watching IMF’s procrastination tactics regarding its approval of an aid package to Pakistan—demonstrating unqualified ifs and buts– which reflects its illiberal approach towards a developing state, like Pakistan whose economic condition requires an accommodating monetary synergy by the International Monetary Fund.
The IMF has three critical missions: furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity. Pakistan and the IMF 9th review discussion was apparently concluded in the second week of February, but a staff level agreement (SLA) is yet to be reached. The 9th economic review was supported by the extended fund facility (EFF) arrangement. In these dealings, it was decided that negotiations could not become functional until the state provided an economic framework.
Before coming to Pakistan (31 January), the IMF conveyed the message indicating to Pakistan authorities that they must take some required actions vis-à-vis the EFF. The EFF is a facility offered by the IMF where a country can borrow money for addressing its structural and economic problems. For two weeks consecutively, the IMF team discussed the 9th review of the $7 billion extended fund facility. The main agenda was to hold technical talks based on economic data given by different departments. The prime focus of the Fund remained the inducement of those monetary and fiscal policies which are core to restoring and guaranteeing sustainable growth.
This perspective exclusively aims at strengthening the fiscal position of the state through high-quality measures that are durable. Another provision of the deal is the implementation of a hike in fuel prices. The diesel levies are to double to around 5 PKR a Liter from the month of March, with the second hike to start from 1st April. Apart from these targets, there was an emphasis laid during the meetings on revenue collection, phasing out the untargeted subsidies, and non-interference with the exchange rate. The IMF has also imposed the condition that by April, the Ministry of Finance and State Bank of Pakistan (SBP) will establish a Development Finance Institution to support the eventual phasing out of SBP refinance facilities. The new institution will take responsibility for the SBP refinancing scheme, assess the Export Refinancing Scheme (EFS) by February-end and take needed actions to improve its effectiveness.
Pakistan’s national currency is under pressure as the country faces fast depleting foreign exchange reserves that have dropped to just $3.7 billion, not even enough to cover import payments for a single month. Pakistan on average has imported goods valued at $5 billion per month during the last six months. The successful conclusion of talks between authorities and IMF team will lead to the disbursement of $1.1 billion but analysts expect the implementation of key measures under the IMF program will push inflation to over 30 percent in upcoming months.
Needless to say, the Governments only approach the IMF once they have had no other option than to choose for the IMF assistance. It is commonly observed while negotiating the bargaining terms, the Fund adopts such callus approach towards the borrowing state as its protégé. The IMF deals with them in such a way that they are soon reduced to the status of virtual slaves. States getting IMF loans have to forgo their sovereignty. IMF advisors and consultants tell them what to do, when to do it and how to go about it. Facing a serious foreign exchange shortage. Virtually, this has been the case of Pakistan negotiating the 9th economic review by the IMF. IMF’s do more mantra has been interpreted in some Pakistani quarters as its geopolitical play. The IMF callous policy approach towards Pakistan accompanied by its delaying tactics is the endorsement of this perception. Fairly arguing, while reviewing the Pakistani case, the Fund should not miss to take into consideration the three important factors as discussed here.
First, the economic crisis Pakistan faced during Covid -19. Arguably, at the start of 2020, the Pakistan’s economy was transitioning from stabilization to growth; however, the outburst of COVID-19 pandemic brought multifarious challenges. According to IMF, Pakistan’s economy has remained muted at negative 0.4% in 2020 as compared to positive 1.9% in 2019.
Second, Pakistan’s proverbial compliance of the FATF demands. Noteworthy, in October, 2022, FATF removed Pakistan from its grey listing. To acquire such a triumph, Pakistan state institutions—Parliament, Judiciary, State Bank of Pakistan, FBR, FIA, and the National Accountability Bureau (NAB)—unanimously played a cohesive role in implanting the 34 point agenda. Most importantly, Pakistani anti-terrorism court convicted some of the leading leaders of the militant groups. True, Pakistan’s economy is dependent on international investors. The entry into the whitelist must positively boost its economic indicators. Most importantly, the IMF’s current callous Pakistan policy is discouraging the foreign investors.
Third, Pakistan’s strict compliance of the current IMF’s demands. If we juxtapose the Pakistan –IMF negotiations in its 6th, 7th and 8th review, we find that it has never happened before that despite making a strict compliance of the IMF demands, the Fund is still showing its unjust ifs and buts to conclude SLA. The consequences of such a delay are fatal for Pakistan–which is already in an uncertain position regarding its financial flows. The balance of payments, the growing challenge of current account deficit accompanied by high inflation are the factors that are badly hampering our economy.
Nonetheless, according to some economic experts, three parameters are responsible of pending the IMF’s approval: firstly, the Fund has to verify that the exchange rate is market based or not; secondly, the cabinet’s nod about the revision of power tariff; and thirdly the very verification about the financial assurances provided by the SBP from bilateral partner countries—KSA and the UAE. And yet, needless to say, because of speedy implementation of the IMF demands the life of a common citizen has become more miserable and challenging.
Notably, crisis-hit Pakistan needs to pause debt repayments if it isn’t able to secure funding from the International Monetary Fund quickly enough, according to Bank of America. Against this backdrop, the Fund must adopt a forward looking approach towards Pakistan so that it must fulfil the required financial exigencies. The core objective of the IMF must be broadly put forth in order to assist the economy of a developing stale-Pakistan.
