Pakistan Reader# 322, 2 May 2022
Ankit Singh
On 24 April, Finance Minister Miftah Ismail informed that Pakistan had managed to revive the stalled review talks with IMF. He shared that the size of Extended Fund Facility (EFF) program will now be USD eight billion from USD six billion. He also said the loan facility's term is to be extended for another year up to 2023 to shore up Pakistan's double deficit problem and foreign exchange reserves. An IMF statement signalled constructive discussions and a common understanding for doing away with unfunded subsidies.
On 28 February, in his televised address, former PM Imran Khan announced a relief package in the form of subsidies for petroleum and another tax amnesty scheme adding another expenditure parameter worth USD 1.5 billion. That decision was a deviation from the IMF's benchmark and targets of fiscal expenditure and budget surplus targets and led to stalled process under the seventh review discussions of EFF. The then ruling government found the conditionalities and benchmarks unsuitable when the nation was suffering from double-digit inflation complemented by uncertainties in global supply chain management and a net increase in the price of commodities. The new government, in principle, has swirled the process of discussion with IMF towards a common adjustment, whereby there are speculations and planning around fuel pricing and further rationalization of power tariffs under a longer adjustment period. The IMF approach remains the same, but both sides have an adjustment.
Three reasons explain the nuanced relationship between the two.
First, the same agenda from different poles. The IMF in its latest review report on the basis of sixth review talks, emphasized on controlling the deficits and expanding the tax base to deal with and creation of a centralized financial institution to maintain the track of domestic crediting. IMF has been criticized in Pakistan for the following: the methodological parameters of assessing deficits, the macro-economic performance criterion have more to do with managing the liquidity crises of the government for keeping the economy on the right track and has ignored capital account-based policy discussions. Successive governments, however, have been more inclined toward internal political interests rather than approaching the fiscal crises and then economic crises. IMF is focused on increasing governance to enhance revenue and targeted subsidies. In contrast, the governments in Pakistan have had a larger interest in keeping the state and hence the economic elites close to themselves for favourable public support and maintaining credit perception through IMF approvals.
Second, the rise of populism and the threat to multilateral governance. The emergence of populist leaders and a renewed spirit of detachment from politico-economic tentacles of the west-based world order pushed the IMF on a strong footing in negotiations with the then former Prime Minister Imran Khan's government. His tax amnesty scheme for overseas Pakistanis to disclose their dead assets and make them functional was a critical step in expanding the monetary and fiscal expansion after the rebasing of the economy was done. Such an attempt was perceived as an addition of influential families in the economy and an emerging risk from Pakistan to become more autonomous viz a viz the USA. Therefore, the expansion was seen as Pakistan drifting away from an established network of independence and that is a symptom of the transforming multipolar world order in Pakistan. If not rapidly, the de-hyphenation of Pakistan with IMF will follow gradually. Either way, Pakistan will remain a tough nut to crack for IMF as the country prizes its economic sovereignty especially due to its spatial location of Pakistan in the current geo-economic quagmire.
Third, from conditional lending to defensive lending. The review talks had been stalled, especially on the tax amnesty and removal of the petroleum levy which will further hamper the prospects of stabilizing the current account deficit which has reached USD 24.5 billion. However, the phenomenon is not new as out of 23 IMF programs, Pakistan has only completed one program to its full extent. This hints that the lending process from IMF has inclined towards defensive lending rather than condition(s) based lending programs with Pakistan. The prospects under the new representative government have further provided higher ground to authorities in Pakistan in reenvisaging the lending with renewed hopes. The opposition, which is now the ruling government, had already hinted at the demand for a newly negotiated deal enabling the governments in Pakistan on a defensive position. The trust erosion with the previous government has been revived by the current government in its negotiations. This goes well with what the previous finance minister said: "one step forward and two steps back." Irrespective of the government, the enabling of a stronger government at the behest of weakening the current style of economics in Pakistan is not favourable in the short term. Hence, the IMF and its economic thumbs up for industrial governance is critical to move ahead rather than remaining stuck at structural issues. Therefore, the relationship is bound to transform and Pakistan would like to gain as much as possible until it can.
References
Anwar Iqbal, "IMF, Pakistan technical-level talks begin," Dawn, 28 April 2022
Khaleeq Kiani, "IMF to be approached for help over balance of payments: Miftah," Dawn, 13 April 2022
Hafiz A Pasha, "IMF programme: projections, targets," Business Recorder, 15 February 2022
Ali Khizar, "No road to stability?," Business Recorder, 21 March 2022
Andleeb Abbas, "The new world 'disorder'," Business Recorder, 21 March 2022
"Bilawal wants govt to renegotiate loan with IMF," Dawn, 13 February 2022
Shahab Jafry, "'One step forward, two steps back’,” Business Recorder, 17 March 2022
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