Now when a deal with International Monetary Fund (IMF) is being concluded, it seems that the Balance of Payment Crisis (BoP) may be controlled, however due to some tough conditions imposed by the fund, Pakistan will witness further soaring of inflation and economic slowdown in short run that will be bringing unemployment along with other impediments. Pakistan, which joined the IMF in 1950, has had 21 bailouts since then. Its most recent loan was issued in 2013, worth $6.6 billion. There are some positives along with several negatives implications if a country comes under IMF program. That is why countries who opts such program try to complete it successfully with a mission not to avail the same time and again. IMF works like any other lending institution who actually gives loans to the parties those can repay the same timely. Therefore, to make sure repayments timely, the fund works closely with Financial Managers of the country to formalize such economic patters which may help securing the loan together with improvements in particular departments which can earn more revenue that otherwise may be not. Taxation, Central Bank regulatory measures for Exchange Rate and Energy are some of these departments which are actually responsible either to earn revenue or in bringing Economic indicators to its real value. As these segments involves huge amount of subsidies and governmental control to check inflation and economic activities therefore deficit financing pops us which bring country into a debt trap. IMF conditions undo these actions taken by the government and it slowdowns the economy and due to subsidies to hold back, inflation triggers that bring more people under the line of poverty.
Imran Khan new Financial Team seems to be more sophisticated who are master of their work and know what to do for the goals to achieve. However, there are concerns that these technocrats are imported from World Bank and IMF which may bring and support IMF agenda
Present government before coming into power used slogan to no to let IMF rule Pakistan but afterwards it changes everything. This is not only in case of Pakistan but it happens other part of the world where political parties initially shouted against IMF went into IMF bailouts right after assuming power, is it be Venezuela, Egypt or elsewhere. Now, talking about Pakistan, presently discussed bailout will be 22nd instance which means either previous governments were not committed to end supporting Economy of Pakistan with subsidies or to reduce balance of payment crisis through bringing down trade deficit hence controlling Foreign Exchange and inflation artificially. PTI when assumed power had one big emergency to deal with i.e. Economic Emergency. On one side of this emergency like situation, they need to focus on repayments due in immediate two fiscal years whereas on the other side they need to reduce Balance of Payment Crisis which is due to ever increasing trade deficit resulting from widening the gap between import and exports. After assuming power, PTI first Finance Minister Mr. Asad Umer seemed to have three point agenda before going to IMF, first, to bring Pakistan towards real value of economy i.e. devaluation of currency that resulted in inflation to increase which further resulted in high interest rate scenario and slowed down the economy but it reduces Current Account Deficit, remarkably. Secondly, he reduces subsidies gradually which ofcourse felt by general public and import based businessmen at large. Third agenda was to bring loss making public institution into going concern and then to privatize the same on higher price through wealth management idea. What he miscalculated was timing of IMF bailout and Tax revenue which resulted badly on his career as Finance Minister therefore to address the same he tried to reintroduce tax amnesty scheme which becomes bone of contention among the members of federal cabinet. Prime Minister Imran Khan then replaced him with an experienced professional Mr. Hafeez Shaikh as advisor to PM for Finance who then bring his own team for central bank and Federal Board of Revenue. Opposition is claiming that the team is imposed by IMF as surety and it is government’s surrender to the fund’s demands.
New Financial Managers of Pakistan have good resume indeed. Mr. Hafeez Shaikh is PHD in Economics having 30 years of experience in Policy Making, management and implementation and remained Finance Minister of Pakistan from 2010-2013 whereas he also severed World Bank and taught at Harvard University. He brought in Mr. Reza Baqir as Governor State Bank, a Harvard Graduate, PHD in Economics from University of California and was Senior Resident Representative for Egypt. He was Head of Debt Policy Division during his tenure with IMF. As he is lead arranger for recent IMF program in Egypt therefore there are some concerns that new IMF bailout may be on the same pattern as of case of Egypt. New Finance Team also have Syed Shabbar Zaidi as Chairman Federal Board of Revenue, who was senior partner of AF Ferguson and a the most senior tax expert in Pakistan. He also remained Provincial Minister in Caretaker government and author of many books including Panama Leaks. Imran Khan new Financial Team seems to be more sophisticated who are master of their work and know what to do for the goals to achieve. However, there are concerns that these technocrats are imported from World Bank and IMF which may bring and support IMF agenda.
to be continued
The writer is an Economist, Corporate Finance Specialist and a Chartered Banker UK