With the International Monetary Fund’s Board of Directors giving approval on Monday, the decks have been cleared for the dispersal of Rs 1.2 billion to Pakistan, being a $1 billion tranche under the Extended Fund Facility of $7 billion, and a $$200 million tranche under the Resilience and Support Fund programme of $1billion. It was the second review of the EFF, and the first of the RSF. At the beginning of this EFF, Prime Minister Shehbaz Sharif had announced that it would be the last. It is now about midway through the three year programme, and it should have started to be discernible whether or not the economy is going to be on track for this. The main issue is whether the country has got a pathway to avoiding the sort of crisis that forces it to turn to the IMF for a bailout.
If one examines what forces Pakistan to turn to the IMF, it has been its difficulties in servicing its foreign debt. While the IMF shakes its head and calls for Pakistan to carry out reforms, it seems to have left vague the method by which increased foreign exchange generation is to take place. The reforms are supposed to develop a virtuous cycle, where Pakistan piles up foreign exchange. Actually, all that is happening is that the IMF ensures that Pakistan is capable of paying off its creditors, including the IMF. It issues a sort of Seal of Good Housekeeping, which means only that the country is able to access the global money markets. In short, incur more debt, which we are then going to have to service, at some stage going cap in hand to the IMF to tide us over.
There is the possibility that the IMF’s reform proposals are wrong. I short, that the IMF doesn’t know its economics. Still, its proposed reforms are economic orthodoxy, because Mr Sharif asked a British academic to make proposals (on which the URAAN proposals are based), and he came up with something very much like what the IMF proposed. The Finance Ministry clearly does not have its economic theory right, or the country would not be in the situation it is. Maybe the IMF has got its economics wrong, because it does not show the path by which the country can get itself out of the debt trap it finds itself in. Perhaps the government should see what happens if it carries out the reforms recommended, which start with businessmen and; arge landlords paying their fair whack.
