ISLAMABAD: After hearing divided views of members of the high-profile Economic Advisory Council (EAC) on approaching the IMF, Prime Minister Imran Khan on Monday told the EAC participants that there was need to take best decision after analysing all pros and cons and its impact on people of Pakistan.
Many members, most of them retiree of the World Bank, Asian Development Bank and other International Financial Institutions (IFIs), were of the view that Pakistan should immediately go back to the IMF but first time it was the Minister for Finance Asad Umar who stated in plain words that Pakistan should go to the IMF only after getting “favourable” conditions.
When contacted by The News for seeking his views on Monday night, Minister for Finance Asad Umar replied that “my position is unchanged from day one. We should negotiate a programme which is good for Pakistan economy and then sign it. My preference is still a well negotiated IMF programme and that is why we are engaged in active discussions with the IMF and the next video conference is on Thursday with the Fund staff”.
The sources said that Finance Minister Asad Umar gave his viewpoint on approaching the IMF before the EAC members and stated that he had changed his viewpoint because he was looking at macroeconomic data on daily basis. “In November last, it was my view that there was no other option but to go back to the IMF,” he said and added that now with the premier efforts the emergent crisis was over as the country managed desired chunk of dollar inflows from friendly countries and there was no hurry to go back to the IMF blindly and without seeking lenient view to get softer conditions.
Minister for Finance Asad Umar cited example of Egypt who came into the IMF programme after which they had to devalue their currency by 100 percent but the current account deficit could not be curtailed. Their current account deficit improved only because of tourism; Pakistan did not have this kind of tourism so the IMF programme does not look like a recipe for all economic ills.
The minister further stated that the poverty increased under the IMF programme in Egypt as more than 50 percent fell into poverty trap under the IMF programme against 30 percent before the Fund programme.
The EAC members ask the government to bring improvements in Pakistan Bureau of Statistics (PBS) as its data on inflation was captured wrongly so it needs to be strengthened. The PBS has been working without Chief Statistician and members in its fold. The government told the EAC meeting that the government selected one banker as Director General Debt Office Ministry of Finance.
The medium-term strategy paper envisages that in the absence of government managed adjustment, the macroeconomic imbalances would grow in magnitude forcing the economy to make its own disorderly adjustment. Depleting foreign exchange reserves would force the government to default on debt servicing and other payments liabilities, making it extremely difficult to arrange credit in international markets.
With no-adjustment (i.e. full-blown crisis forced market adjustment) not being not an option, a decision had to be taken on the pace of managed adjustment.
One option was to frontload the corrections removing the imbalances at the start of the PTI government term so that the economy recovers to a high growth. The other was to take a more gradual adjustment path maintaining a balance of sharp price adjustments when needed and, at the same time, vigorously pursuing structural reform to strengthen the foundations of the economy. The government opted for the latter option for two reasons. First, the high cost of full adjustment in the first two years would fall disproportionately on the poor, and the public safety nets would not fully mitigate that cost. Second, the current economic instability is the outcome of imprudent decisions taken in the last 2-3 years of the previous government which were exacerbated by the deeper structural issues plaguing the economy. These had been unaddressed despite commitments given to domestic investors and the international community: back loading structural reform (to achieve higher tax revenue, lower subsidies, greater international competitiveness) had resulted in their abandonment. Not only the stabilization program initiated by the last government, almost all previous stabilization programs remained unsustainable because they were not accompanied by measures to address the structural problems, leading to periodic recurrence of instability.
To break the cycle of recurring instability, the present government is committed to the path of sharp adjustment as needed combined and front loading structural reform with a particular focus on improving governance in key utilities and SOE’s. This will provide a solid foundation for economic recovery as the efficiency gains from structural reform will hasten recovery, sustain it longer and will mitigate the pain of a long period of stabilization related belt tightening, particularly for the vulnerable segments of the population.
It is expected that the twin strategy of stabilization and structural reform will, in the medium term, help bring down the fiscal deficit to sustainable levels of around 4 percent, will eliminate the current account deficit, and will increase investments and promote productivity led exports. The expectation is that in the next 3-4 years, following curtailment of aggregate demand, the economy will start growing at a respectable rate of around 5 percent. The government stands ready to take additional measures, if needed, to safeguard economic stability and reorient the economy towards export led growth, added the sources.
