Dealing with the IMF

The IMF wants us to act in a more responsible manner

Dealing with the IMF


any people in Pakistan are quite confused about the way negotiations between Pakistan and the International Monetary Fund are taking place. As a result, hopes raised one day turn into despair the next day.

If the current negotiations succeed, we will get around $1.1 billion from the IMF. This is not a very large amount per se, but the agreement can open the door for other financing opportunities that are awaiting the IMF nod. The IMF is a lender of last resort. It provides funds when some country faces a balance of payment crisis. Since funding from other sources is not available the IMF approves a funding programme after incorporating its conditions that in the opinion of its staff are necessary to put the relevant economy back on track.

The conditions have to be implemented according to a timeline provided by the IMF. Pakistan has availed around 2 dozen IMF programmes in the last 60 years, perhaps the highest among the IMF member countries.

For the first few programmes, the conditions imposed by the IMF were relatively soft. The implementation of the conditions was monitored by its staff on a quarterly basis. The loan installments were released after the Fund staff and the government reached an agreement on the progress. In many cases, the IMF granted waivers.

This changed during the last government. The then finance minister, Dr Hafeez Sheikh, asked for a front-loaded programme under which the corrective measures were to be implemented before the start of the programme. Only matters related to privatisation, restructuring of the power sector and constitution of independent boards for power distribution companies and independence of the State Bank were to be discussed during the programme.

The programme made some progress and waivers requested with regard to some of the conditions were allowed. However, the programme was abandoned mid-way. The new finance minister, Shaukat Tareen, after showing some stubbornness requested a new programme. The IMF this time asked for an independent State Bank before starting the programme. It also asked the government of Pakistan to keep the rupee value market-based and raise the petroleum levy by about Rs 50 a litre on petrol and diesel. The levy was to be raised at the rate of Rs 5 per month. The government also committed itself to raising power and gas tariffs under an agreed timeline.

We are still in that programme. However, during its last few months the government lowered the prices of petrol and diesel by Rs 10 per litre and the electric power tariff by Rs 5 per unit. The IMF programme was instantly derailed. The PDM finance minister, Miftah Ismail, moved cautiously and brought back the IMF to the table. The petroleum prices were raised and power tariff jacked up, the rupee was allowed to devalue, the interest rates were enhanced. These measures made him extremely unpopular. The implementation of the conditions was then halted and Miftah shown the door.

Dealing with the IMF

The IMF procedure for signing its programme with Pakistan changed during the last government. The then finance minister, Dr Hafeez Sheikh, asked for a programme under which all conditions were to be implemented before the start of the programme.

His successor talked openly of pressing the IMF to soften its conditions. However, the foreign exchange deposits started declining at a rapid pace and he was forced to agree to even harsher conditions. Even after fulfillment of some of those conditions, an IMF agreement is not in sight.

Maybe the IMF is fed up with us. Maybe they want our governments to act more responsibly, not take them for a ride. Maybe they don’t want to see successive governments reach agreements through a finance minister only to dump them after accusing them of making a bad deal for the country and start afresh.

It is not as if a particular finance minister and not the government of Pakistan is responsible for the international commitments. Maybe the IMF wants our governments to deliver on their commitments and not ignore the agreements once the money gets transferred. Maybe they don’t want the next government to accuse its predecessor of a bad
deal with the IMF and refuse to honour its terms.

Maybe they want the nation as a whole to grow up and take responsibility. Maybe we are just being nudged towards a more responsible behaviour. Unfortunately, it is a very unpleasant process.

Whenever there is an indication that a deal with the IMF is in final stages, the stock indices go up and the rupee recovers some of its value against foreign currencies. The gains are short lived. The losers in the process are small investors. The gainers are speculators and manipulators. Every time the rupee gets devalued, the losers are Pakistani consumers and the government which sees its debt-servicing requirements rise.

When the government of Pakistan jacked up power and gas tariffs, the move caused high inflation. We all know that our power and energy needs are fulfilled by imported fuels. With increase in the dollar value against the rupee the cost of power and gas increases and that again has to be passed on to the consumers.

The writer is a senior economic reporter

Dealing with the IMF