Why all the fuss about ‘an IMF man implementing the IMF program’? I mean the new SBP governor, of course. Fact is, whether you like it or not, it doesn’t matter who negotiates with the Fund. When they bail you out of a sure default they do it on their terms. It’s as simple as that.
And if any country should know that by now, it’s Pakistan; after the dozen or so programs we have already had. So, put any local market genius at the Bank, but once you sign on the dotted line he’ll do with interest rates and money supply exactly as he’s told.
And now that the program is upon us, and the terms are already pretty clear, you can understand why PTI has suddenly gone mum about the whole ‘we’ll negotiate an arrangement that suits us’ narrative. And you’ll definitely not hear about the friendly loans any more. Turns out, they didn’t help much after all.
Back then they were still trying to avoid the IMF; because of the election slogans and all that. Then somebody thought it was a smart idea to borrow from friends instead of going for an austere Fund bailout. But who looked silly when the friendly petro billions were burnt controlling the next couple of wild rupee devaluations?
All that begging and pleading and the reserves reverted to more or less where the PTI government found them – hovering around the $8 billion mark. A swing-and-a-miss that cost the exchequer at least $12 billion, with interest, with not much to show. Well played?
Sure, PTI found the economy in a mess. But if they had done the sensible thing and gone begging to the right party, they would have ruled out uncertainty. Let the IMF do the devaluation and structuring right from the beginning and then blame the pain on the predecessors. That would have made more sense and caused less trauma in the financial markets, where uncertainty about approaching the IMF, month after month, led to a foreign portfolio investment exodus to the tune of tens of billions of dollars. There’s a text book lesson for everybody here. The one thing markets hate more than bad news is uncertainty.
But what now? Already unemployment is highest in five years, inflation highest in nine years, reserves deep in red, remittances dropping, growth plummeting and the rupee gone through the floor. Then there’s higher fuel prices and higher Ramzan prices. Now, with the budget and the Fund program, we’ll have gas price hike, taxes shooting up and subsidies suddenly vanishing.
How’s that supposed to sit with Mr Average Joe? Especially if he’s from that fast growing bunch of middle classers with pink slips in their hands?
Also, let’s not forget our past experiences with IMF bailouts. From structural adjustment to extended fund facilities, we’ve had just about everything on the menu over the years. Yet just look at how structured our economy is. And in all those times we’ve only managed to complete one program, that too after having key targets revised down every quarter. So why should this one be different?
Problem is, however they posture IMF programs are eventually about expanding tax revenue and encouraging parallel programs, often with other lending institutions, that restructure manufacturing and production towards value added exports.
Makes sense, on paper at least, since both measures are aimed at increasing revenue. And if we can generate money of our own we won’t need to go begging so often, would we? Yet all those programs later our prime exports are shirts and shorts and mangoes and tax collection among the worst in the world. Even Imran Khan’s claim, that people would suddenly start paying taxes because of his personal honesty, proved false.
So how a new FBR chief, also subject of much controversy, can suddenly breathe life into tax earnings just because he’s a pretty smart guy is difficult to understand.
Unless, of course, they go for radical indirect taxation. Put another surcharge on anything that can be priced. But that, when prices are already at almost a decade-high and less people with jobs with every passing month, can quickly turn into a political nightmare; especially with a very bitter, NAB stricken, opposition already sharpening its knives.
At least, push come to shove, the Fund people implementing the Fund program will still have ready employment elsewhere, just like they flew into these assignments.
The views expressed in this op-ed are that of the author and do not necessarily reflect the editorial policy of Surkhiyan.