Over the last seven decades, Pakistan has approached the International Monetary Fund (IMF) 23 times, and almost always, the government of the day borrows the first installment, promises to undertake actions, never does, and IMF walks away and then a few years later this cycle is repeated. The inability, or unwillingness, by any government to undertake critical structural reforms is the reason. The Imran Khan led PTI government appears to be following the same path, except it hopes that because of geopolitics (the Afghanistan question) the US and the global community will convince IMF to continue to shore up Pakistan.
In a recent opinion piece titled ‘Dangerous bargain’ Dawn economic columnist, Khurram Hussain writes about ‘bombshell’ decision by Finance Minister Shaukat Tarin that “the IMF has postponed the ongoing sixth review of the facility Pakistan just restarted in April.” Hussain states the reason why this is a bombshell: “The budget he has just announced has a deficit of almost Rs4 trillion, and more than a quarter, Rs1.056tr, of the net financing for this is supposed to come from floating international bonds and the IMF. Without satisfying the IMF and successfully concluding the sixth review it is highly unlikely that they will be able to realise these funds, as well as the many others that are subject to successful implementation of the Fund programme, such as disbursements from the World Bank and the Asian Development Bank. And without these funds the budget — with all its tax cuts, subsidies and elevated development spending — could well be in jeopardy.”
Hussain notes, that the government is “trying to sell a story but their creditors are not buying it. All we have to work with at the moment is the short remark put out by the finance minister, that the Fund has said they will return for the review in “two or three months” and in the meantime they have asked the government to go ahead and walk the path they have chalked out for themselves and demonstrate the viability of its underlying financing plan. Now they have a few months in which to show that their measures for curbing the growth of the circular debt without raising tariffs, and their plan to increase revenues while cutting taxes, can actually produce real, tangible results that can be measured in rupees.”
Finally, Hussain points out that “The path they are planning to walk next fiscal year is a very risky one, but they are determined and confident because they feel external support will come. They probably have good reasons to feel this way, because the Americans are desperate to make their exit from Afghanistan without that country falling to the Afghan Taliban too quickly. Pakistan holds the key to this like it always has, but first wants to know ‘what do we get out of this?’ If our own past is any guide, they will get their way. The Fund will return, the oil and dollars will flow, and whatever inflationary consequences there are to gunning growth in one year will be offset by the massive public spending that will be unleashed. But our own past also tells us that such gambits end in tears. Long after the oil and the money have been burnt to fuel the engines of the economy, the burden of the responsibilities they would have signed off on will remain, and weigh heavier and heavier. If the government is seeking to shore up its electoral prospects by taking on the responsibility to prevent Afghanistan’s descent into chaos, they should know this is a devil’s bargain. And the devil always comes for his due.”