Dr Qaisar Rashid
The crunch time has come. A three-member mission of the International Monetary Fund (IMF) is visiting Pakistan for a week to conduct a Governance and Corruption Diagnostic Assessment under the Extended Fund Facility, which allocated US$7 billion in September 2024.
Two main aims of the IMF were these: first, to help Pakistan solve its balance of payments problem; and second, to recover the debt, teetering on the edge of becoming an irrecoverable (bad) debt. To meet these aims, the conditionality for introducing structural reforms (to improve institutional capacity and promote transparency) was conveyed. Pakistan agreed to the same.
As technical support, before any next tranche is issued, the visiting IMF mission has to assess the implementation of agreed structural reforms. The IMF-Pakistan agreement would be at risk if structural reforms are not undertaken in the domains of institutional capacity and transparency. Both realms pertain to the government and can be rolled into one: whether or not the bureaucracy has enhanced its capacity to work without resorting to corruption. Furthermore, the mission is mandated to identify gaps in governance and vulnerable areas that permit corruption, which also deters foreign investment. The mandate will be applied to six core state functions: fiscal governance, central bank governance and operations, financial sector oversight, market regulation, rule of law, and anti-money laundering to combat the financing of terrorism. Once the agreed and proposed reforms are implemented, another round of assessment will be conducted to gauge the outcome. Rounds of this exercise are important for Pakistan because it has repeatedly knocked on the IMF’s door for financial help.
While relishing an incorrigible bearing, Pakistan has been forgetting that when a country borrows money from the IMF, it agrees to change its economic policies to overcome the problems that led it to seek financial assistance. These policy adjustments are conditions for the availability of IMF loans to ensure that the country adopts effective policies. If the recipient country is only interested in seeking financial assistance and uninterested in adopting the agreed or proposed economic policies, alarm bells start ringing in the IMF office. This has happened to the extent that the IMF mission called on the Chief Justice of Pakistan and pleaded for introducing reforms in the judiciary. The visit to the Supreme Court was indicative of the IMF’s lack of trust in the judicial institution. The mission did not ask for a briefing by the judiciary to understand Pakistan’s judicial system. Instead, it visited the court to convey its dissatisfaction with the workings of the judiciary.
Within the domain of macroeconomic stability, the IMF mission has expressed concerns over Pakistan’s efforts to curb money laundering, which is a source of both terrorism financing and the ballooning black economy. Another factor that swells the black economy is ill-gotten money earned by government servants. Apparently, the IMF has concluded that without reducing the size of the black economy, the formal economy cannot be expanded. That is, macroeconomic stability is not possible without hampering the flow of unaccounted money.
The black economy represents a confluence of botched economic efforts and a bungled rule of law. This is why the IMF has linked macroeconomic stability with the digitalisation of the economy. This is a formula of exclusion—that is, cull what is not required. This is contrary to the general acceptance of black money circulating in society, funding lavish spending and extravagant lifestyles. The IMF mission has been trying to measure the progress Pakistan has made towards digitalisation.
What hinders Pakistan’s digitalisation is not just the non-application of digital technology but also the laws that prohibit declarations. This is why the IMF mission has been meeting all those who enact or implement laws. The mission emphasises changing laws, even if this comes at the cost of judicial independence or executive supremacy. Certainly, without changing laws, digitalisation is not possible, and the benefits of transparency cannot be realised.
Simply put, if the general public has no trust in the financial integrity of the ruling elite (whether politicians or government servants), they will not be willing to pay taxes or fulfil their financial obligations as responsible citizens. Instead, they will adopt means and measures to bypass the system in order to protect their economic interests. Perhaps the IMF has rightly identified the missing link between the rulers and the masses: the lack of trust. For example, the number of taxpayers is not increasing significantly. Indifference is forcing the government to increase indirect taxes on utilities such as electricity, petrol, and gas. That is, the sole link left intact between the government and the citizens is the provision of utility services. Recently, citizens who sought self-sufficiency in electricity by using solar panels effectively severed this solitary link, which greatly irked the government.
While the practice of responsible citizenship is in short supply, the practice of an accountable government is also lacking. The result is economic insufficiency. Enter the IMF, which seeks to recover its money (debt with interest) by attempting to bring the government and the citizens closer to each other. The IMF is saying: the government must reduce its size, sacrifice its privileges, eliminate unnecessary powers, and work transparently to regain the confidence of the masses. On the other hand, the masses must enrol, declare their income, and pay their due taxes. Both ends require reforms, pleads the IMF.
The IMF mission is set to issue its report in March, upon which the recommendation for the next tranche’s issuance will be considered by the IMF board.
The writer is a freelance columnist.
He can be reached at qaisarrashid@yahoo.com
