IMF’s report belies claims

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Muhammad Jamil

There are 189 members of the International Monetary Fund (IMF), but it is run by seven of them — the US, the UK, Japan, Germany, France, Canada and Italy. The group sustains its control by insisting that each dollar buys a vote. The bigger a country’s financial quota, the more say it has in the running of the IMF. This means that it is run by countries that are least affected by its policies. The question, however is, why a resourceful country like Pakistan has to be in the debt trap of the IMF. The answer is that due to the flawed policies of the inept rulers Pakistan has come to the present pass. It spends more than the revenue it collects and imports more than it exports. To meet fiscal deficit it relies upon banks, and to meet current account deficit it approaches the IMF.
After completion of the three-year Extended Facility Programme, the IMF Staff Mission Report stated: “The fund supported programme has helped the country restore macroeconomic stability, reduce short-term vulnerabilities and progress on structural reforms. Economic growth has gradually increased and inflation has declined. External reserves have increased, financial sector resilience has been reinforced, and the fiscal deficit has been reduced while social safety nets have been strengthened.” But the situation on ground belies the claims by the IMF and Finance Minister Ishaq Dar.
Last week, while speaking at a seminar, IMF Managing Director Christine Lagarde said: “Despite the marked improvements over the IMF-supported programme, Pakistan still only collects little more than half of what is estimated as a feasible amount in taxes.” Addressing the media, she said that a Panama or Bahamas leaks like situation could be controlled by improving the system of accountability and transparency.
The IMF staff mission led by Harold Finger had visited Dubai in regard to the final review of Pakistan’s economic programme supported by a three-year IMF Extended Fund Facility (EFF) arrangement. At the conclusion of the mission, Mr Finger issued the statement that read: “Growth is expected to reach five percent in FY 2016-17. Average inflation is expected at around 5.2 percent in FY 2016-17, remaining well-anchored by continued prudent monetary policy. In the course of the IMF-supported programme, Pakistan’s economy has made significant progress toward strengthening macroeconomic and financial stability and resilience, and laying foundations for higher, more sustainable, and inclusive growth.”
However, if agricultural and industrial production and exports have declined, exports of services sector have declined by two billion dollars, and other targets have not been achieved, there is nothing to write home about.
Last month, the State Bank of Pakistan while announcing monetary policy for two months stated that exports have declined by 8.3 percent to $22 billion in fiscal year 2016 as compared to $24 billion in 2015. The State Bank stated that despite lower energy and commodity prices, inflation in the first two months was recorded at 3.8 percent, up from last full year average of 1.83 percent. The question arises that if exports have declined and inflation is on the increase, then what has been achieved by the three-year IMF programme? Independent think tanks and the Policy Research Institute of Market Economy report that the inflation figure had been understated; it is 4.7 percent, and not 3.8 percent or earlier 1.83 percent. The cost of pulses, meat, beef, poultry and rents, and ever-rising electricity and gas tariffs do not find place in the CPI. There is widespread perception that not only inflation figures but also Gross Domestic Product (GDP) figures are fudged.
Since the government decided not to enter into the next IMF programme, analysts have noticed a significant slowdown and reversal in reform processes like government borrowings, energy reforms, tax reforms, privatisation and re-structuring of loss-making public sector enterprises. On 1st August 2016, Finance Minister Dar claimed that Pakistan did not need support from the IMF any more. Despite decline in exports and a debt of Rs 18 trillion, which includes foreign debt of $72 billion, Dar was upbeat, and presaged that by 2050, Pakistan will become the 18th biggest economic nation across the world. At the moment, this appears to be a farfetched statement, as Pakistan has not met any of the targets vis-à-vis fiscal deficit, trade deficit and current account deficit. Remittances from expatriate Pakistanis have also declined, and with the decline in exports, the current account deficit is bound to increase.
The government claims that the GDP has increased from two percent to more than four percent, but it is not reflected either in the realm of increase in production and job opportunities or in exports. The claim of improvement in social indicators is also bogus, as human beings are treated as mere statistical numbers. The most serious aspect of our dire economic situation is the growing public debt, which on one hand limits the capacity to build a strong defence, and on the other limits fiscal space to invest in human development and infrastructure. Threats faced by Pakistan have to be understood in the light of a fast changing regional and international situation, which adds urgency to revive the economy so that adequate resources could be allocated to counter them. Pakistan has a public debt of more than 65 percent of the GDP, which is indeed alarming.
The fact remains that Pakistan has to follow the instructions of the IMF for increasing the rates of utilities and privatisation of national assets to meet the shortfall in budget and trade deficit respectively. But increase in utilities’ tariff leads to cost-push inflation, and our industries are unable to compete in the world market. This is one of the reasons for decline in exports. Direct Foreign Investment is also declining as compared with previous year, which was already meager. However, it should be borne in mind that with increase in portfolio investment in stock exchange by foreign investors, and payment of dividends and profits on their investment in business and industry, the result would be a massive outflow of foreign exchange in future. Pakistan is endowed with enormous resources; however, there is need to show zero tolerance to corruption to make climate conducive to investment.