IMF agreement

Published in Dawn, February 18, 2021

WITH a staff-level agreement between the government and the IMF staff, Pakistan is now set to re-enter the programme that was suspended in April because of the coronavirus. Although the Fund statement released at the moment carries only broad pointers of what is to come, one thing is quite clear: it is the poor and the unemployed who will have to bear the brunt of the inevitable adjustment that the government would need to implement. We do not have to see the detailed programme to know this. Our experience from a dozen other IMF programmes over the past three decades tells us that this is how it has always worked.

The re-entry into the programme begs an important question. Since the government has been telling the people for a number of months now that the economy is on the right track and that the foreign exchange reserves are improving and the current account is in surplus, what exactly is the need to re-enter the programme? The IMF should be seen as the ICU of economies, a place where countries go when they are facing a severe crisis. So the act of re-entering the Fund programme at a time when the government’s ministers are regularly reminding us that the economy is improving and growth picking up appears contradictory, and this question needs to be answered by those managing the economy.

ReadIs the economy turning around?

However, the biggest area of concern now is how the poor, the middle classes and the unemployed will fare. Every Fund programme has come with a string of price increases in essential utilities, and the language of the recent Fund statement points in the same direction this time as well. It has become the norm in recent years for IMF statements to include sentences urging greater care for the poor to shield them from the impact of the adjustment, but it has mostly been left up to the government of the day to implement this.

More often than not, governments here have resorted to making rhetorical promises of support for the poor even as they passed through large hikes in power and fuel tariffs, and dropped people into unemployment from government payrolls. The current set-up is keen to be seen as championing the cause of the poor, so it has an added responsibility of ensuring that it actually meets this standard. The statement also says very little about structural reforms, which are the key to sustainable growth. Aside from some changes in the Nepra, Ogra and State Bank Acts, there is no mention of any meaningful reforms to broaden the tax base or improve competitiveness. Adjustment without reform has never worked to the country’s advantage, and neither the Fund nor the government should try to put a shine on an agreement that skirts this critical question.

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