Of IMF’s Gloss & Govt’s Promises

By Amir Zia
The News
Sunday, March 13, 2011

Pakistan has to show more seriousness and commitment toward the stalled economic reform process

Eleven days of talks between an International Monetary Fund (IMF) mission and Pakistan’s top economic managers leave more questions than answers about the direction of the country’s ailing economy. The biggest one remains the government’s willingness and commitment to introduce reforms on which it has been dragging its feet for months and months now.

The statement issued by IMF’s mission leader Adnan Mazarei at the end of talks on Friday, indeed, provides the much-needed gloss over Pakistan’s shaky relations with the global lending agency, but the carefully chosen polite words such as “constructive discussions” do not conceal the fact that all depends ‘if’ the government manages to “promptly and consistently” implement measures needed to reduce the yawning budget deficit and put a cap on bank borrowing during the remaining months of the current fiscal year and the next 2011/12 (July-June) period. All the other key economic performance benchmarks, including reviving growth and curbing inflation, remain linked to whether the government is able to address the fundamental structural flaws of the economy or not. For this, expanding the tax base and abolishing untargeted subsidies, ranging from fuel and electricity to the loss-making state-run institutions, are seen as the most vital.

But going by the Pakistan Peoples’ Party (PPP) government’s performance, this ‘if’ syndrome has so far proved its main disaster. Yes, if the ruling party had an economic vision, an economic team of its own, if it managed to provide clean and honest governance, if it was able to increase revenue collection, widen the tax-net and implement reforms, and if... the wish list can go on and on. Certainly, Pakistan would not have been in the present mess, if the government had taken timely and tough decisions.

But that was not in Pakistan’s destiny under President Asif Ali Zardari-led PPP government, which wavered, compromised, and remained paralysed on key economic issues, from the imposition of the value-added tax (now the reformed general sales tax) to taxing the urban rich and rural landlords.

The government’s inability and incapacity to fulfill promises made to global lending agencies led to the technical suspension of the IMF’s $11.3 billion standby arrangement in May 2010 after the disbursement of $7.6 billion. Despite these 11 days of talks with the IMF, tidings from Islamabad are that the situation is unlikely to change as the PPP bosses, bogged down by a wide range of political challenges emanating from the judiciary, extremists, political opposition and from within the ruling coalition, do not want to shake the present economic status-quo and go for hard choices.

If looked at from the PPP leadership’s narrow self-serving prism, the government’s inaction makes sense. The PPP has started the fourth year of its term and going for difficult and path-breaking decisions does not make sense now. Such decisions are made at the start of the term, which the ruling party did not go for. Now going by President Zardari’s agenda, the target is to complete the term or at least hang on to the power as long as possible.

The current level of foreign exchange reserves, hovering at above $17 billion on the back of high remittances from expatriate Pakistanis and a surge in exports, means that the government can safely pull itself through for another few months, or even a year or so without needing the IMF’s held up tranches of $3.7 billion. By that time, the country would have gone into the election mode and it would be the new government’s job to face the harsh economic realities.

Therefore, one now does not see the urgency and the will even within the government’s economic team to fight their case within the ruling party or with political opponents and plead their case in the media. Finance Minister Dr Abdul Hafeez Sheikh and his coterie of economists appear content just holding important portfolios and passing time. No wonder, apart from occasional lip-service provided to the cause of reforms, Sheikh and his team appear in no mood to stick their necks out and become the public face of this government. The aloofness of this team from the stakeholders and the media is also taking its toll on the economy.

Remaining engaged with the IMF without producing results, however, remains a necessity for this economic team not just to give a flimsy mirage to the world that the reform process is still on, but also helping individuals to cultivate contacts and provide an opportunity to remain within the circle of global donors and lending agencies. After all, for some, these institutions could offer the next lucrative job.

But for ordinary Pakistanis, the sobering thought is that for the first time in recent years the United States and its key western allies have not asked the IMF to show Pakistan any leniency. The world powers, through the IMF, want Pakistan to develop a consensus on reforms and their implementation and to contribute its bit before seeking aid, loans and dollars from the taxpayers of other nations.

Yes, Pakistanis have to show more seriousness and commitment towards the stalled reform process than their international partners.

Sadly, it appears that the IMF remains more serious about putting the country’s battered economy back on track rather than our government and its economic team.