A pyrrhic victory

By S. Akbar Zaidi
Published in DAWN on September 01, 2022

CELEBRATING an IMF deal is a contradiction in terms. Such agreements might temporarily rescue governments and their economies, but these are always anti-people with deep and deleterious long-term consequences.

The announcement made by the IMF to revive Pakistan’s programme this week, which perhaps the government of Pakistan chose not to read carefully beyond the headline as it highlighted numerous uncomfortable truths, already projects a pre-floods inflation rate of 20 per cent. On top of this, the IMF insists that the governments need to increase electricity prices and taxes on petroleum products even further, as well as keeping interest rates high. What exactly are we celebrating?

Countries generally on the brink of economic collapse are the ones which go to the IMF seeking a loan, usually when it is already too late, and an economic disaster is well upon them — Sri Lanka is a good recent example. Some countries are prescient and have the foresight to approach the IMF well before they are on the verge of economic turmoil, and Bangladesh is an example of one such country which was doing much better than most of its peers, but the global slowdown forced it to turn to the IMF. While discussions will commence soon, the IMF recognises that Bangladesh is nowhere in a crisis situation. And then, there is Pakistan, truly a veteran of generous IMF benevolence.

The revival of Pakistan’s agreement with the IMF had been expected for at least the last month, when it was clear that the finance ministry and the lender had agreed to strict terms which Pakistan would adhere to. The joint statement between the State Bank of Pakistan and the Ministry of Finance made public on Aug 1 made it clear that all the preconditions had been met and all the government of Pakistan had to do was to wait till the IMF board met at the end of August.

Two quite dramatic events, even by Pakistani standards, gained much traction in the period since the joint statement.

The first was the much-publicised story of army chief Gen Bajwa contacting the US government to ask for its help to push for the IMF loan, and that too, ‘at the earliest’. If this conversation happened, it was quite irrelevant since the agreement between the government of Pakistan and the IMF was already well in place and even the request from the COAS had little value to add at this late stage.

The revival of the IMF deal gives the government some breathing space but it also allows the old complacency to return.

The second, even more startling revelation, was based on the audio recording of former federal finance minister Mr Shaukat Tarin in conversation with the two current finance ministers of Punjab and Khyber Pakhtunkhwa, trying their best to sabotage the IMF deal by allegedly writing to the IMF saying that the agreement could not be met due to provincial financial constraints faced especially by KP on account of the damage caused by the floods.

While many observers have suggested that this was a treasonable offence, which at one level it well might be, the truth is that it did not have much consequence just three days prior to the IMF board meeting. The agreement was already a done deal and all that was needed was the board’s ratification.

Moreover, the IMF negotiates only with federal governments, and no matter how irritating provincial governments can be, they can only attempt to draw some political capital, which in this case clearly backfired.

The agreement which has been reached is not a new one, and is the revival, with additional, stricter, conditionalities, after many stop-start moments, of the one agreed to in July 2019. The celebrations one sees around us, especially by the ruling elite, of receiving a mere $1.1 billion, are a sign of how low our expectations and standards have fallen.

While there was a small possibility of a default, mostly on account of our own collective doing, the revival of the programme allows us only very short-lived breathing space. The deep-rooted, chronic, structural problems which affect the economy, have barely been articulated, let alone addressed.

The revival of the agreement does give the government some breathing space now that their anxieties are lifted and they can return to status quo ante, but it also allows for the old, persistent complacency to return. All adjustments and actions taken in the last four months by the incumbent government were to ensure that they secured the loan. Now that they have, they have the opportunity to sit on their false laurels and can easily avoid taking measures which are even more unpopular than the ones they have already taken.

Before we forget, these are loans which need to be paid back, not grants or aid without strings attached, not that aid ever comes free of favours in return. Yet, the conditions imposed to get an IMF loan, the preconditions as they are called, end up raising taxes (usually regressive ones, such as indirect taxes), cutting expenditure (always development, never defence), increasing tariffs on consumers for utilities and other essentials, and are meant to slow down aggregate demand and the economy.

Having signed 22 agreements with the IMF, Pakistan’s numerous governments, even at the best of times, have little to show for what they have achieved. Even strong and supposedly stable military governments have depended on the IMF and apart from a slight, short improvement in economic numbers, have made little progress, with the burden — of debt, inflation, slowdown — always passed on to the people, not the elite.

With severe political uncertainty caused by a belligerent opposition leader, it is clear that there is going to be much political and economic disequilibrium for many months to come. With the damage caused by the floods to the economy estimated to be 10 times the amount received from the IMF, this latest rescue package is not going to rescue the people of Pakistan.

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