IMF’s ‘Do More’

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Dr Qaisar Rashid

Whereas Pakistan is refusing to wean off the engrained habit of earning less and spending more, the International Monetary Fund (IMF) is also declining to turn soft on Pakistan. On November 15, the visiting team of the IMF and Pakistani authorities reached a staff-level agreement on the first review under the Stand-By Agreement (SBA) to release the second tranche (amounting to US$ 700 million) bringing total disbursements to almost US$ 1.9 billion out of the announced US$ 3 billion bailout fund for nine months approved by the IMF in July this year.
Though the agreement is subject to approval by the IMF, Pakistan is buoyant to have secured the second tranche. The IMF has been helping Pakistan meet its external debt liabilities and urging on Pakistan to stabilise its economy. The rest of the bailout funding amounting to US$ 1.1 billion would be negotiated in March with the newly installed elected government in Pakistan. There are efforts underway to privatise certain national assets such as airports, shipyards, and mines to earn foreign exchange. Pakistan’s preference is to sell these assets to friendly Middle Eastern countries. The sale may yield some fruit for the present, but this is not the long term solution.
Anyway, the IMF team did not drop its insistence on “do more” for Pakistan. The IMF team made several demands.
First, Pakistan has to do fiscal consolidation. The demand is pregnant with implications on the way Pakistan lays out its yearly budget. The IMF wants Pakistan to bring on one sheet all declarations on its earnings and expenditures for the next fiscal year – to begin with. That is, declare all sources of income and spending, and diminish the head of “miscellaneous” from both income and spending. This is a difficult proposition for Pakistan, the economy of which is plagued with the black market (expressed as undeclared sources of income) and hidden, clandestine ways of spending. Pakistan has to bring its spending in line with its earning.
Second, the IMF has asked Pakistan to impose tax on the agriculture land and the real estate. This point holds a potential for changing the structure of the economy straight away. The perceived idea is that the money parked in the agriculture land and invested in the real estate for easy and quick monetary gains would be liberated to run the local industry which would offer employment to the locals and which could export its products to earn foreign exchange. However, the point is this: most Pakistanis are not inured to be small- and middle-sized entrepreneurs who could initiate their own businesses to earn foreign exchange. For them, investment in land is easier than in the industry. They are trained to run land-oriented businesses than venturing into entrepreneurship which requires education and skill. Though under the spell of expediency, the installed caretaker government would succumb to the IMF demand, the asked transformation would be excruciating.
Third, the IMF wants Pakistan to withdraw intervention from the free floating of the rupee and let the market forces decide on the matter. This demand was made vociferously before releasing the first tranche. Pakistan succumbed to this demand to later discover that in the appreciation of dollar was hidden the hand of its guest citizens, the Afghan refugees. The value crisis of currency was so severe that Pakistan had to disregard its aged old friendship with the refugees, who were found involved in buying dollar from Pakistan and smuggling it to Afghanistan. Between the choices, save either economy or friendship, Pakistan opted for the former. Now, Pakistan finds itself at odds with its neighbor, Afghanistan, on quick repulsion of the refugees, who had got settled in Pakistan.
Fourth, the IMF requires that cabinet members and government officials declare their assets to the public. With that, perhaps, the IMF has spoken on behalf of the people, who cast aspersions on corrupt practices devouring public funds, transferring money abroad, and buying foreign nationalities.
Fifth, the IMF abhors offering an amnesty scheme. The IMF has refused to permit Pakistan to open a vista for the inflow of money from the existing black economy by offering any sort of amnesty scheme. Instead, the loopholes to permit the outflow of money be plugged to avoid the bourgeoning of the black economy which necessitates amnesty schemes after every couple of years. Further, Pakistan has to reform the Federal Board of Revenue (FBR) by dividing it into two halves: the tax policy making half and the implementation half. Instead of relying on manpower, which goes corrupt, rely on digital technologies.
As apparent, after general elections in February 2024, the newly elected government would face the challenge of restructuring the economy further – to avoid default