Daily Times

After walking on broken glass for so long, the economy might have started limping towards an upwards cusp. Fingers crossed!

With Pakistan salvaging $500 million from the IMF, finance adviser, Hafeez Sheikh, delightedly announced the “good development.” The revival of this stalled programme comes as glad tiding, indeed, for the government amid its struggle to overcome the adverse financial impacts of COVID-19. Yet, the $6 billion deal cannot be called anything that it is not. A bailout! Our thirteenth in the last 30 years. And every bailout comes with its own set of brakes.

It is widely known that the programme was put on hold last January after the prime minister pulled out a white flag over the recommended remedial measures (particularly, the increase in power tariffs). Now that an agreement has been reached, what will become of those proposed reforms?

The IMF has often been criticised in the past for imposing austerity reforms on receiver nations that even chop off their social programmes. Given the recent economic gains, PM Khan’s team is in a bit of a pickle. A constant rise in remittances from overseas Pakistanis has come has a pleasant surprise. The inflows crossed $2 billion in December 2020 for the seventh month in a row. With our exports up by eight per cent ($ 2.14 billion), the business trajectory is showing a rising trend. This rapid recovery, especially when keeping in view the regional export situation (Bangladesh and India) is something to celebrate. Therefore, the government must be vary of the threat to its fragile turnaround once it greenlights IMF reforms–taking away the fiscal and regulatory lifelines from the business community. It would be in Pakistan’s favour to come up with reforms that comply with IMF’s structural adjustments while making sure that the masses are not thrown to the wolves.

We had already agreed to a market-driven exchange rate in 2019 when we had first knocked on IMF’s doorstep. And the disastrous depreciation is hard to overlook. Pakistan’s abnormally weak currency (rupee has been devalued by over 2100 per cent in the last seven decades) is among the most vulnerable to dollar appreciation. Whether it has to do with the unwavering reliance on the greenback as the haven trade is up for debate. Still, all attempts to fix the payment crisis using rupee depreciation have by and large failed. The fact that interbank trading ended at Rs 222 to a quid on Wednesday cannot be justified by any means.

Darting right along the trade highway are our imports (machinery and food commodities); tilting the trade balance away from Pakistan while heightening the payment pressure. All negotiations with the IMF should be mindful of the boost that any negative impact on the local production would give the skyrocketing import bill. This caution is not to make light of Pakistan’s success in getting the next tranche of payment. Sheikh and his team are simply advised to lock a programme that can be implemented in these extraordinary pandemic times. The IMF must be forced to wear a different hat if it wishes to see Pakistan on a sustained growth highway. A coordinated fiscal and monetary policy must be the highlight of the table! *