Groundhog day

Easy parallels can be drawn between the anticipation with which the media, petrol pumps, traders, business owners, government officials, and ordinary people were waiting for a potential announcement from the recent visit of the delegation from the IMF and the sighting of the moon for Eidul Fitr. If the moon isn’t sighted, we can’t have Eid. In a similar context, if the IMF doesn’t give its blessings, we may just be another inch towards a complete economic meltdown. This has happened more than two dozen times during the last half century. We get into an IMF programme after pushing the economy to the brink, and then we expect the IMF or some friendly nations to bail us out. As soon as we get a bailout, we revert to our usual profligate ways – only to crawl back to the IMF in a few quarters.

And – in a throwback to Groundhog Day – it is all happening all over again. The IMF expects certain pre-conditions to be met before they can reach a Staff Level Agreement, and get approval from their Board, before any funds can be disbursed. With less than $3 billion in foreign exchange reserves left, the lowest level relative to our import requirements in the country’s history, the policymakers continue to delay the inevitable. The inability to align policies and structural changes with the expectations of the IMF has led to further deterioration in our foreign exchange reserves, and has potentially broken-down supply chains, resulting in higher inflation expectations.

The expectations of the IMF are simple. The lender of last resort expects the government to increase taxes, such that they are able to cover government expenditure, reduce subsidies provided on energy, and maintain a market-determined exchange rate. The expectations aren’t unreasonable, or extraordinary to begin with – it is a macroeconomic prescription to induce stability into the system. A country cannot keep running itself without collecting sufficient taxes to cover its expenses. And Pakistan has been running itself on borrowed funds for more than a decade now. We cannot continue doing this anymore. And so we have to make structural adjustments regarding how we run our affairs. Once Pakistan can assure the IMF that it is willing to make structural adjustments, and won’t go back on its word like the country has more than two dozen times, it may just might be able to unlock financing from the IMF, and other multilateral institutions, as well as friendly nations to inculcate some macroeconomic stability.

The time for reforms is now. Any further delays will only lead to a deteriorating macroeconomic position and inflict pain on the country’s population. A swift closure of the IMF programme is critical for macroeconomic stability, and that needs to be accompanied by sincere reforms. Anything less, and we will be back to the IMF for an ever deeper and more painful reforms programme to shore up our precarious reserves position. Let’s hope that those at the helm are not as ardent fans of Groundhog Day as they seem and we can finally break the curse.