- Trouble with the IMF
Until Thursday, the talks of the Finance Ministry and the IMF review team were deadlocked, even though it was the last day of talks which had started on February 3, so there was a one-day extension in the hope of reaching an agreement. It seems that the Finance Ministry has dug in its heels and is not willing to agree to steps that it has already committed to taking. Even though the Finance Ministry is headed by an unelected technocrat in Dr Hafeez Sheikh, it seems that the measures which need implementation are electoral suicide. The purpose of the IMF team is to ensure that Pakistan will earn enough foreign exchange to pay back the IMF loan, which itself was made to prevent Pakistan defaulting on loan repayments to the IMF. The purpose of the Pakistani side is to ensure that Pakistan exits the stagflation it is trapped in. That it has been plunged into it by the same programme is something that the electorate will punish, unless prosperity can be achieved.
There are a number of sticking-points. First is that of the gas and electricity tariffs, which the government is supposed to raise. Its contention is that raises so far have merely created dislike for the government and public dissatisfaction, and the government cannot afford any more unrest. Then there is the vexed question of the China-Pakistan Economic Corridor. The IMF team is rendered uneasy by the dependence on Chinese loans, as well as the Free Trade Agreement with China. It would like Pakistan to make such an FTA with European countries. The problem foreseen by the Finance Ministry is that it would lead to the destruction of what remains of Pakistani industry. While the revenue collection target set by the IMF has been reduced, the government is not willing to impose the minibudget needed to meet the new target.
That Pakistan will have to give in, especially over power tariffs, is inevitable, for they are deal-breakers. However, the question arises whether it would not have been better– for both parties, not just Pakistan– if this attitude had been shown at the time the agreement was being negotiated. Pakistan wants to remain on the programme, which it had applied for after much political angst. Populism does not make for sound finance.