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For well over three years, finance minister Ishaq Dar has been excessively quoting IMF praise for his economic management at the public forums to assure the nation that all is going well with the economy of the country.
But the latest vibes from the international financial institutions show that all is not well and Pakistan’s economy will slide back to the situation it was in, a decade ago.
The not-so-good reports about the state of the economy from the IMF came at a time when the government is grappling the political crisis generated after the release of the damning JIT report on Panamagate investigations. It has triggered a debate in the local and foreign media, asking whether Prime Minister Nawaz Sharif would be able to complete his full five-year term in office.
The prime minister has rejected the calls from his opponents to step down after the JIT report concluded that Sharif and his children have accumulated wealth beyond their known means.
However, the opposition parties have also refused to budge from their demand of asking the prime minister to step aside pending the final judgment of the Supreme Court on the report, which may determine the political career of the beleaguered leader.
The report is not only a big political blow to the prime minister, but also to his heir-apparent and political successor, Maryam Nawaz, who investigators accused of forging documents to mask the truth.
Irrespective of the outcome of the apex court decision, one could foresee more political polarisation in the country in the coming weeks and months.
Ironically, the JIT also raised serious questions about the conduct of prime minister’s key aide and finance minister Ishaq Dar, during PML-N’s pervious terms in office and accused him of being a conduit for laundering money for the ruling family. Though Mr Dar has rejected the allegations and vowed to defend him strongly in the court, observers say the brewing political crisis might deflect his attention from addressing economic issues plaguing the country.
At such a critical moment, the IMF released a report based on the Article IV Consultations with the Pakistani authorities, launched following the completion of the three-year $6.2 billion bailout package.
According to the IMF, the macroeconomic resilience has strengthened in Pakistan during the Extended Fund Facility, which included increase in growth, reduction in fiscal deficit, and recovery in the foreign currency reserves, thus salvaging Pakistan from a balance of payment crisis.
During this period, the structural reforms were also set in motion, measures were taken to tackle long-standing fiscal and energy sector constraints, and social safety nets were strengthened.
However, the international lender noted that policy implementation has weakened and macroeconomic vulnerabilities have begun to re-emerge which include slow-down in fiscal consolidation, widening of the current account deficit, and depletion of foreign exchange reserves.
On the structural front, the accumulation of arrears in the power sector – the circular debt – is coming to a dangerous level, financial losses of ailing public sector enterprises continue unabated while exports remain low.
Despite progress, it said, poverty and inequality are still significant.
On foreign exchange rate, the IMF seems to be supporting the State Bank of Pakistan’s position that the rupee should be devalued against the US dollar to confront external sector challenges, failing which the foreign exchange reserves would come under pressure, which are already “below a comfortable level”.
The IMF stuck to its long held position that Pakistan’s actual exchange rate is overvalued between 10 to 20 percent and it sought “greater exchange rate flexibility, fiscal adjustment and structural reforms,” to rectify this imbalance.
“Resumption of accumulation of reserves – including through allowing downward exchange rate facility – is needed to further strengthen buffers while also supporting competitiveness,” it added.
Is the government willing to pay any heed to the IMF advice?
The finance minister’s strong reaction to the central bank’s recent move to allow over three percent depreciation of the rupee shows that government is in no mood to mend its policy as it fears that it could trigger a political backlash in the wake of rise in inflation, which it cannot afford less than a year before the general elections.
Critics say independent economists have long been raising the economic challenges for the government, but the IMF conveniently ignored their calls and instead heaped undue praise in a bid to ensure successful completion of its bailout loan package.
They say if the international lender had given timely warnings to the Pakistani authorities about the challenges and ensured timely actions then the things would have been different.
Coming months are critical for the economy of the country and the authorities need to ensure that the macroeconomic gains made over the past four years are consolidated, but it can only be done in an environment of political stability.
Economy always becomes the first victim of political uncertainty in any country and there are widespread fears that political tensions are going to rise in the coming months.
Political observers, however, say despite rising political temperatures there is a general consensus among the political parties on the continuation of the democratic process in the country.
Though PTI has called for an early election, the PPP has said it wanted the present parliament to complete its tenure.
Despite hard-hitting public comments by some government ministers, their senior leaders have made it clear that they would accept the apex court’s decision even if goes against them, meaning that even if the prime minister is compelled to step down, the democratic system would continue.
However, analysts say despite growing political challenges, the economic team of the government should not lose sight of its main task and concentrate its energies to stop achievements made over the past few years on the economic front go waste.
If it happens, the country has to restart from scratch as it had to do in the 2007-08.
A big responsibility now lies on the shoulders of the political leadership, particularly the government to prevent the country from plunging into the economic abyss once again.
The writer is a senior journalist based in Islamabad
