Perhaps it was symbolic of Pakistan’s desperation that the very arrival of an International Monetary Fund (IMF) delegation to negotiate over the stalled IMF tranche in its latest package was accounted a victory by the government. Pakistan is dangerously close to default, and the IMF knows it well. Because of this, it will press all the harder on its functionalities, which the government had initially rejected, or dragged its feet on, because they were unpopular. It should not be forgotten that the IMF no longer has any easy conditions to offer, as they were offered and accepted a long time ago, and now all the conditions are politically difficult for the government to implement.
Its should not be forgotten that the IMF is trying to turn around the country’s economy too after all, it wants its loans repaid. However, the conditions it is laying are difficult for a government to accept when it is just months from an election, and perhaps weeks from elections in two provinces. The condition the IMF has laid down is ending the subsidy for lifeline consumers, which is part of the plan to manage circular debt, which has reached Rs 2.9 trillion. The IMF also wants a pay cut for government employees considered, and also a hike in the petroleum levy by Rs 10 per litter, which lead to another round of petrol price hikes, as it compounds the effects of a rapidly devaluing rupee.
Perhaps the problem is not so much bad policies as policies aimed at the short term. Pakistan’s economy has of late been run by snake-oil salesmen at worst, smooth talkers at best, men who have claimed to have solutions, but who have actually had, at best, only a short-term fix that would keep the donor agencies satisfied. The latest example, Ishaq Dar, is typical: he came in promising the money and was dedicated to defending the rupee against the dollar. Because of that, when the rupee was allowed to float freely under IMF insistence, the rupee plummeted, and forced an unprecedented increase in petrol prices. Economic realities cannot be avoided. If Miftah Ismail had to take tough and unpopular decisions to get the IMF to come back, replacing him as Finance Minister by Senator Dar did not prove to be the solution, for he had to take tough decisions for the same reason. There is no longer the option of running to the ‘friendly countries’ for help, for they have now made their aid conditional on IMF. Policies must be such that they take the country out of the debt trap permanently, not lead it into a dreamland.