Ahmed Mukhtar Naqshbandi
The International Monetary Fund (IMF) has asked Pakistan to ensure that the reforms will keep continuing and they will give staff-level agreement. On the last day of the two-week talks, Finance Minister Ishaq Dar arranged a video meet-up with Prime Minister Shehbaz Sharif and IMF mission chief Nathan Porter. Where Prime Minister reiterated the assurances.
When the assurance arrived, IMF shifted the goal post and changed its stance, rather than offering staff-level agreement paving the way for the approval of the $ 1.1 billion tranche.
It kept the condition for meeting the fiscal deficit and imposing taxes, first and then imposing extra taxes of around Rs 120 billion than earlier agreed.
Does IMF Really Change Goal Posts?
Dar knowing that IMF normally does that, could not finally control it too.
This bluff by IMF is a routine for the borrower countries, it was announced by Dr Ishrat Hussain, the former Vice President of the World Bank, who broke this news at a time when all the conditions were fulfilled; IMF added a few, which were again fulfilled, IMF added few again.
Then Dr Ishrat who had joined as Governor State Bank of Pakistan gave a statement that the IMF is changing the goal post, which led the IMF to come to terms and approve and issue the tranche for Pakistan. It was the year 2000-01 when this statement came.
Ishaq Dar himself, when he was in opposition, used to say out loud in his statement that he had a letter from IMF, threatening Pakistan to cripple it if its terms and conditions were not accepted. With that, some political and other non-financial points were also part of that threat letter.
Far Eastern countries, especially Malaysia, shout loud against IMF & World bank or Bretton Woods Institutions, that they are meant to destroy the enemy countries’ economies. Its 1997 currency crisis was actually created by them, as late Prime Minister Mahathir Muhammad of Malaysia used to claim.
Detailed IMF Conditions
Let us look further at the condition of IMF in the current program; privatization of state-owned enterprises (SOEs), especially the loss-making units like Pak Steel, X-Wapda Discos, and profit-making Gencos, were also enlisted to divest for friendly countries.
This move was already in place, and work was underway for that. FATF conditions for asset declaration of government employees from Grade 17 to 22 were implemented while the mission was suiting in Islamabad from January 31 to February 09, 2023.
The primary balance should be zero; tightening the belt of government spending is always a key IMF condition. Primary balance is defined as the difference between the government’s revenue (earnings) and its non-interest expenditure (spending, not including debt payments). It can be taken as a percentage of GDP or Gross Domestic Product.
The benefit used to come from provinces as they usually produce a surplus, and combined deficits make a better number than simply a very higher federal deficit. The friendly government in Punjab always helps the federal government in this scenario; whenever there is an opposite party in Punjab, the deficit had gone out of proportion. This time it is the luck of the center that the Punjab government was just changed within days and the deficit seems to stay in control.
Energy Losses
Losses in the energy sector and the circular debt has become considerably higher, it should be reduced and taken to zero or eliminated in the government books of accounts. Rs 3100 billion electricity produced and Rs 1800 is bill payments are coming around Rs 1300 billion is the losses, not covered from anywhere and are also wasted in subsidies. Cutting subsidies will also slash these losses, ultimately helping to control the fiscal deficit.
Currency and GDP Size
The currency depreciation had a very negative impact, both on the rupee value and the debt burden. Pakistan size of GDP had crossed a few times over $ 300 billion, but as the rupee value came down, the size again fell below $ 300 billion. It had crossed more than once $ 300 billion, and if the economy could have been sailing smoothly, it should have been near $ 400 billion if it had a nominal growth rate of 10-15% in the last few years.
The real GDP growth rate was lower, but when combined with inflation, it becomes a nominal growth rate; when the inflation rate is just over 25%, then 2% of the real GDP growth rate simply makes it to 27%. So, only 15% for three years could have added $ 100 billion in simple two to three years.
