Tuesday, June 05, 2012
From Print Edition
The budget was nothing if not bad news: the economy had missed its target growth rate of 4.2 percent and would expand instead by about 3.7 percent; investment was at its lowest in decades, increasing joblessness and poverty – and all this while the country was already reeling under an endless war on terror, a deteriorating power situation and double-digit inflation. Could things get any worse? As the State Bank governor warned recently, they can: Pakistan’s failure to control budget deficit could force it to return to the IMF for assistance. Pakistan already owes the IMF about $8 billion: $1.8 billion is due to be paid in 2012, $3.9 billion in 2013 and $2.1 billion in 2014. In the absence of a new arrangement, Pakistan will have to repay a total net amount of $7.8 billion to the IMF in less than three years. Since putting in place a sound economic policy over a long period of time is not something this government could ever have imagined doing, a shortcut had to be the only way out; hence the reports that Pakistan has all but decided to seek a new financial arrangement with the IMF amid concerns that it may not be able to repay this debt without external support. Addressing the post-budget briefing, Finance Minister Abdul Hafeez Shaikh did not rule out the possibility of seeking a fresh bailout package in six months, citing the budget deficit at 7.4 percent and current account deficit at 1.7 percent of the GDP this year as the top reasons. What he did say was that Pakistan was “constantly in touch with the IMF,” not failing to remind that the purpose of creating the IMF was to help member countries in a difficult balance-of-payments position so that they could stand on their own feet.
That is precisely the problem: IMF programmes have only bailed out Pakistani governments in periods of crisis but they have never helped improve the underlying state of the economy. There are two reasons for this: one, the IMF has always imposed ambitious, one-size-fits-all top-down plans that have failed at the implementation stage; two, Pakistani governments have never had the motivation to implement the policy reforms attached as conditionalities to IMF programmes. The last arrangement in 2008 ended when the government rejected demands for reform and walked out prematurely. Controlling government expenditure, raising the tax/GDP ratio, reducing deficit and making the State Bank independent were among some of the reforms the IMF suggested. If Pakistan returns to the IMF the conditions now may be even tougher. So what would be the best course of action? If the IMF does agree to another programme, it should be a genuine programme developed and owned by the Pakistani government itself rather than another unsuitable programme, and it should be ensured that reforms are put in place. Does the government want to fix things or does it want to leave a giant mess for others to clean up?