Avoiding default
REPORTEDLY, IMF Director Middle East and Central Asia Department Jihad Azour, in a meeting with the Pakistani delegation which is in New York to attend the IMF/World Bank spring meeting, expressed the hope that the IMF would soon reach a staff-level agreement with Pakistan. That assurance has come in the backdrop of commitments from friendly countries which the IMF had been insisting to secure before signing the agreement. It is indeed a good news for Pakistan. The conclusion of the agreement will also unlock other bilateral and multilateral financing avenues for Pakistan helping it to avoid the impending default and get out of the balance of payments crises.
However the not so flattering news is that IMF has scaled down the growth forecast to 0.50% from the previously given prediction of 2%. That assessment is a sequel to acute shortage of dollars which has led to disruptions in the supply chains and consequently a number of industrial units stopping production. In view of the above, it will be naïve to assume that with the revival of IMF assistance the economy of Pakistan will suddenly embark on the path of sustained economic growth. The economy is in such a shambles that the managers of the economy have no quick-fix solution to mitigate the sufferings of the people belonging to the lower strata of the society. The agreement with IMF and promised assistance by the friendly countries might help in coping with immediate financial crisis but does not constitute a long-term recipe for the revival of the economy.
The compliance with IMF conditions has already triggered hydra-headed inflation in the country. There is a possibility that with the full implementation of IMF conditions the government might have to enhance rates of electricity by 20%, gas by 50% and petrol between 15-20%, though in phases. Nevertheless, rejoining IMF programme is an inevitable necessity. Realistically speaking, the country can no more afford policies based on political expediencies. To be honest providing gas and electricity to the people below the cost of production might be good populous ploy but it is not sustainable over a long period of time without putting strain on the economy. It is indeed regrettable to note that PTI which signed the deal with IMF committing the implementation of the terms prescribed by it, at the fag-end of its rule wriggled out of its pledge laying land mines for the PDM government. It was a disgraceful act. Even more shameful is PTI now having a swipe at the PDM government for putting the IMF progrtamme back on track. If the PTI government were still ruling the roost, it would also have to do the same.
The permeating economic situation is also a sequel to political instability fomented by PTI. However, it cannot be solely thrown on its shoulders. The prevailing economic situation is a cumulative effect of the failure of successive governments to adopt rational economic policies to put the economy on the path of sustained economic development and also the impact of the global economic environment. They all have relied on loans and grants from bilateral and multilateral sources to keep the economy floating. Till date Pakistan has received $ 185 billion from these sources. Pakistan also has entered into bail-out packages with IMF 23 times beginning from fifties. At present, Pakistan owes $7.8 billion to IMF. It tells the whole story. These loans and grants were never utilized productively. However the governments kept duping the people by making false claims about development.
Unfortunately the global economic environment which also has profound impact on the economies of countries like Pakistan is also not very encouraging. The World Economic Forum (WEF) predicted in 18th Edition of its Global Risks Report 2023 that the cost of living will dominate global risks in the next two years, while climate action failure will continue to haunt the planet’s residents for the next decade. The report has highlighted multiple areas where the world is at a critical inflection point, opining that as the conflict between Russia and Ukraine approaches one year, economies and societies will not easily rebound from continued shocks. The report calls for collective preparation for the next crisis the world may face and in doing so and shaping a pathway to more stable and resilient world. It is pertinent to mention that inflation is presently a global issue. Almost all the countries have been hit by it.
The trade war between US and China is already casting its ugly shadow on the economy of the world and in case of any likely conflict between the two, the global economy is sure to get a big hit with all its debilitating consequences for the developed as well as developing countries, more so the latter. Reportedly a four star US Air Force General has warned of a possible conflict with China as early as 2025 over Taiwan and urged his commanders to push their unit to achieve maximum operational battle readiness this year. The global economic growth is projected at 2.9%. It all boils down to the fact that there are difficult times ahead for Pakistan and the government in saddle will have to take some tough decisions irrespective of the political cost. However, while taking these decisions it should be ensured that the maximum burden is put on segments of the society which can easily share this responsibility.
— The writer is former Director General Ministry of I&B, based in Islamabad.
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