Thursday May 30, 2024

Unjust treatment

By Mansoor Ahmad
May 31, 2023

LAHORE: The International Monetary Fund (IMF) is giving the government of Pakistan a hard time by adding new and tougher conditions after its earlier dictates are accepted. Our economy is deteriorating because of this engineered delay that has intensified economic uncertainty.

Its current behavior confirms that beggars are not choosers. There should have been no new conditions after this government immediately after assuming power jacked up petroleum and power rates and let the Pakistani rupee determine its open market value. Generally, even with economies in serious trouble, the IMF approves bailout packages when the country agrees to implement its conditions in bits during the program period.

Each tranche is released when the conditions for that period are fulfilled, or the Bretton Woods institution has given a waiver on some conditions that the country failed to implement. In the case of Pakistan, the IMF staff put forward many new hard conditions while reviewing the progress of Pakistan's performance in earlier periods. These conditions, though very harsh, were fulfilled by the government to the satisfaction of IMF staff. But the approval of tranches remained elusive, and some new conditions were imposed. This is unfair and unjust.

We all know that the Pakistani rupee is under pressure because most of the foreign financing that Pakistan expects to receive from other international agencies and friendly countries is subject to continuation of our IMF program. We managed to keep our economy going by squeezing imports to the barest minimum and retarding our growth and industry to historic lows. Still, since the foreign funds were not coming, the Pakistani rupee regularly remained under pressure.

The central bank, which is fully autonomous, then tried its best to control the speculative decline of the rupee in the inter-bank market. Since the flow of dollars in the open market was very low, the value of dollars in the open market shot up based on supply and demand gaps.

The IMF experts know that, and they are also aware of the fact that once the IMF gives a stamp of approval (which it ethically should after all its conditions were accepted), the difference between the inter-bank and the open market would narrow down to normal limits. However, if the government of Pakistan is forced to devalue its currency to match open market rates, it will result in a run on our currency.

The open market rate would further go down. It will multiply the miseries that Pakistanis are already facing due to delay in approval of the program by the IMF. The IMF is an international organization that provides financial assistance and advice to member countries experiencing economic difficulties. When a country receives financial assistance from the IMF, it is typically required to implement economic policy changes in order to address the underlying problems that led to the need for assistance.

These policy changes are often referred to as "IMF conditionality" and may include measures such as fiscal austerity, privatization, and market-oriented reforms. However, never before has this institution imposed conditions over conditions as it did with Pakistan.

The IMF's critics rightly argue that the organization's policy prescriptions can be overly prescriptive and can undermine a country's sovereignty by dictating economic policies that may not necessarily be in the best interests of the country's citizens. However, supporters of the IMF argue that the organization's assistance can be instrumental in helping countries overcome economic challenges and promote long-term growth and stability. Though no country that has received IMF support and accepted its conditions has ever come out happy after completing the program.