Taking the IMF seriously

The recently concluded IMF Executive Board meeting has a stark message for Pakistan. Unless those in charge of managing the country’s finances pull up their socks, official foreign currency reserves could slip to $12.1 billion — barely sufficient to finance ten weeks of imports. The Washington-based monetary Fund has also projected that Pakistan’s current account deficit could soon stand at 4.8 percent of total national income — $16.6 billion, or 83 percent higher than government estimates.

This unwelcome prescription comes at a time when Pakistan owes the IMF a cool $60 billion. Indeed, the two sides met back in December to try and determine the country’s ability to repay this sum. But not only that, Islamabad is still reeling from being put on the FATF grey list come the summer. This will make it harder for us to attract foreign investment — which is essential to repaying crippling IMF interest rates on loans. Then there is also talk of the EU, one of our biggest and most important trading partners, possibly considering blacklisting us over unsatisfactory records in the fight against curbing money laundering and terror financing. Yet the most alarming part of all is how those at the helm appear stubbornly oblivious to how corruption is plaguing our financial reserves. For how else to explain the sheer travesty that saw Ishaq Dar, the former Finance minister whom the courts have declared an absconder in ongoing investigations for fraud, being elected to the Senate?

According to the IMF, however, the ambitious CPEC project brings with it due concern. Especially considering that related imports are weighing heavily on our widening current account deficit. Indeed, this could raise our external financing needs to 7.5 percent of GDP. Apart from this, one of the government’s chief economists has cautioned that by 2022 — CPEC debt and repayments will peak at around the $5billion-mark. Thus going forward, the incoming set-up will have to review the selling of this venture as a panacea for all our economic woes.

Islamabad must also take seriously the IMF’s recommendation to widen the income tax net. For Pakistan can no longer remain reliant on General Sales Tax to finance the public treasury. For while the country’s short-term economic growth outlook is currently favourable, it is being jeopardised by the recent Rs3.56 rise in petrol prices. Admittedly, this is in line with the international petroleum market. Yet the 40 percent GST on petrol will undoubtedly cause greater impact here than elsewhere.

The incoming government will have to heed the IMF’s recommendations; it has no choice. Debt levels were under control during the Musharraf regime — though this may or may not have had something to do with his redirecting American military aid to the national budget to secure artificially high GDP growth. Be that as it may, there is no avoiding the fact that during this period External Debt and Liabilities did not cross the $41billion-mark. However, Pakistan’s fragile macroeconomic conditions along with irresponsible borrowing during the Zardari era and the $35 billion in loans taken by the Nawaz Sharif government have reversed all progress made since then.

What is clear now, though, is that Pakistan can no longer afford to run its economy on an ad-hoc basis. What we need is a comprehensive and long-term policy. Should the authorities be good enough to follow this recommendation, they must avoid politicisation of the economy. Furthermore, as elections draw nearer — provincial set-ups would do well to avoid splashing cash in order to score political points. Not only is this reckless given the current state of affairs — it is also extremely unethical given that this money belongs to the people. Meaning it should not be squandered on games played by the political elite.  *

Published in Daily Times, March 8th 2018.