Pakistan is perhaps the only country in South Asia with a history of repeated engagements with the IMF – 21 loan agreements since 1959. The last one was concluded in September 2016. Despite that, Pakistan’s economic woes hasn’t resolved. Its economy is still in worst shape, with the debt soaring, the current-account deficit is widening, and foreign exchange reserves are falling with just around $ 9 billion at the moment, not enough to cover two-months’ import bill.
In the outgoing fiscal year, Pakistan’s current account deficit has swelled to an all-time high of $18 billion, while the budget deficit edged up to around 6.6% of the GDP. Pakistan requires approximately $12 billion for balance of payments support by the end of June next year. The new Pakistan Tehrik-e-Insaaf (PTI) government of Prime Minister Imran Khan is desperately seeking financial support from all corners to fill this alarming gap. Though it has been successful to some extent, by securing $ 6 billion deal from Saudi Arabia and almost same amount from China and UAE together, but it is still not out of woods.
Cognizant of the looming financial woes, the government decided to knock the IMF doors for a bailout package of around $ 6-7 billion. Pertinent to mention that this is the third consecutive civilian government seeking IMF program at the very onset of the tenure. In 2008, the Pakistan Peoples Party (PPP) govt. went to IMF. In 2013 the Pakistan Muslim League (PML-N) govt. approached IMF and now in 2018, the PTI is going to do the same at the start of its 5-year term.
The IMF delegation led by Herald Finger, has just been back, after a two week-long visit for talks on a financial package on the request of the Pakistani government to help it with the balance of payment issue. However, the visit remained inclusive, with the announcement of next round of talks in January 2019. It is highly important that Pakistan, this time, has refused to cave in and accept tough conditions of IMF. Nevertheless, question is – how long it may be able to resist? Will Pakistan be able to divorce the IMF?
The conditions were reportedly included; increase in power tariffs from 20 to 22%, imposition of more taxes and sharing details related to Chinese financial assistance. The mission also asked for further devaluation of the Pakistani rupee, already depreciated more than 27% since the start of this year and 15% in the last five months alone. As far as the contractual agreements with China are concerned, this is something Pakistan does not want to share with IMF because of financial or national security reasons. Pertinent to mention that China has pledged some $60 billion in financing to Pakistan for ports, railways and roads under CPEC.
The general perception is that the government has done the right thing by refusing to cave in to IMF’s strict demands,None of the mainstream political parties have criticized the general perception for avoiding the IMF. Economists are of the view that Pakistan still can avoid IMF. It is not dying for the bailout at this stage and can capitalize on the available cushion. The PTI government assumes itself in a comfortable position after the availability of $6 billion from Saudi Arabia and assurance of same amount from friends like China and UAE, otherwise it would not have allowed the mission to go like this.
The pro-people economic experts are convinced with the government’s decision to resist the IMF. They believe that none of the IMF programs in the past worked, otherwise Pakistan’s economy would have been in a better state today. Almost all the measures suggested by the IMF in latest discussions, were dangerous for the people of Pakistan.
A number of studies carried out by some Pakistan economists confirm that during the 1988-1999 structural adjustment period, the levels of inequality and poverty increased. The decade 1992-2002 witnessed decrease in per capita income and per capita GDP, worsening the gap between the rich and the poor. Similarly, the data between 1981-2001 also confirms many of the above-mentioned observations. This includes the increase of the unemployment rate from an average of 3.5 % in the 1980s to 5.7% in the 1990s further to 6.7% in 2000-01 due to the bitter structural adjustment pills of the IMF.
The strict austerity measures demanded this time by the IMF are bound to devastate the living conditions of workers and the poor. Tough fiscal measures such as imposition of more taxes, withdrawal of tax exemptions, increase in power and tax tariffs, elimination of power tariff subsidies and privatization of public sector enterprises would more hurt poverty-stricken people of Pakistan, who would have to brace themselves for greater hardship in the coming years. In nutshell, any new engagement with IMF will have negative implications for the people of Pakistan. Pakistan’s external debt may jump to $103.4 billion by the end of current financial year, pushing it close to 70% of GDP by 2023.
As the Pakistani public is well aware of by now, crisis interventions by outside donors are no more than a stopgap solution to what has become a chronic problem. What Pakistan needs at this juncture is the debt restructuring from all creditors to give its ailing economy a breathing space for a fresh start. One of the economists and member of the Economic Advisory Council, Dr. Ashfaq Ahmed has advised the govt. that Pakistan must learn to live and survive without IMF.
For a sustainable solution, besides crackdown on corruption and placing in progressive taxation system, the most important thing is the accountability of the previous loans. If the new govt is able to reduce corruption, plug leakages and improve the taxation system of the country, it is hoped, Pakistan be able to divorce the debt dependency in the coming years. This is only possible if the new leadership of PTI dares not only to express but implement the political will that it has been declaring before coming to power. People of Pakistan, in this regard, have high hopes from Prime Minister Imran Khan.
Parallel to that, an independent parliamentary debt audit commission, is need of the hour to determine what loans were used for, whether the people of Pakistan have benefited and to help ensure any future loans are used responsibly.