Imposing unpopular reforms
When Pakistan Tehrik-i-Insaf (PTI) government formally approached the International Monetary Fund (IMF) for a bailout package, eminent economists Dr. Asfaq Ahmad Khan, who had been dealing with this global lender agency for 11 years, did not support availing the loan program in the prevailing economic scenario. He supported a homemade solution by involving economic experts of the country and business community. But amazingly the Economic Advisory Council, which was constituted with a lot of fanfare, remind redundant and dysfunctional for no apparent reasons except lack of direction to have been set by the political leadership.
In sharp contrast to its previous modus operandi adopted in case of Pakistan, this time the IMF has attempted to reach out to the parliamentarians to garner their support in the implementation of politically unpopular reforms, which could throttle economic growth, push inflation and unemployment rates up. Rising inflation vitiates economic environment for fresh investment and negatively impacts the productive capacity of the economy besides accentuating the miseries of low income groups. Increase in unemployment aggravated poverty situation. The UNDP’s HDI index of .05 reflects that about 45 percent of Pakistan’s population is living below the poverty line and if corrective measures are not taken the country may move towards abject poverty situation.
The sort of shock therapy that IMF is suggesting for implementation in Pakistan had not worked in Russia in the era of Boris Yeltsin in 1990s and his successor had to abandon that recipe of disaster for the world’s second largest economy based on sophisticated technologies and high caliber manpower.
There are bold indications that the leadership of both Peoples Party and PML-n may not lend their support for the implementation of IMF reforms agenda. The energy policy of PPP woven around IPPs is a major factor in power sector circular debt and its policy of political appointments ruined the state enterprises like Pakistan International Airline and Pakistan Steel Mill. Moreover, as a part of political strategy, the leadership of these parties will be more inclined to see the PTI government drowned in the quagmire the previous governments created by their bad governance of the past 10 years.
Led by its Mission Chief Herald Finger, the IMF delegation was scheduled to meet half a dozen parliamentarians belonging to mainstream political parties to know their viewpoint on the reforms suggested by the lending agency. But only two of them, PTI Shibly Faraz and PML-N Dr. Ayesa Ghous Pasha turned up for discussion. Dr. Ayesha’s husband, Dr. Abdul Hafeez Pasha has been the most vocal critic of PML-N government fiscal and monetary policies that were bulldozed by the former Finance Minister Ishaq Dar without the approval of the federal cabinet and debate in the parliament, resulting in macroeconomic imbalances of bulging current account deficit and unsustainable public debt. The member of PPP did not attend the meeting. PPP senator and Deputy Chairman Senate Saleem Mandviwala argued that the meeting to which he was invited had been arranged by government without first asking for our consent.
The IMF requested the parliamentarians to lead the structural reforms which would be implemented under its programme. Participants of the meeting disclosed that the suggested reforms were highly unpopular. Therefore, the IMF wanted all political parties to back the programme to make its implementation easy. It hinted at further increase in electricity tariff free float of the exchange rate. The government has already increased the power tariff by Rs.1.27 per unit and the central bank has let the currency to depreciate by 26.6 percent in the past 11 months. The IMF recipe is aimed at steep fiscal adjustment that will stifle economic growth and increase inflation due to proposed massive depreciation of the currency. The implementation of IMF, s reforms agenda would lead to a growth rate around 4 percent for the next three years.
Foreign investors have visualized the prevailing political and economic landscape of the country. They have continued to stay away from Pakistan and are reluctant to make long term investment in the face of ambiguity about the economic policy of the PTI government. Foreign direct investment (FDI) dropped 55 percent to $ 161.2 million in October 2018, compared to $ 354.6 in the same month of last year. According to Pakistan Business Chief Executive Officer Ehsan Malik, uncertainty has probably remained an element behind slow down in FDI. To rectify the fiscal imbalances, the finance minister Asad Umar is reported to have told the foreign investors advisory body that the government is interested more in investment in exports oriented and imports substitution industries. However, a tradeoff between the exports manufacturing industries and the ones of producing consumers’ goods may not be avoidable.