Economist Dr Hafeez Pasha has stated during athat the government’s decision to go on an International Monetary Fund (IMF) programs enabled it to successfully issue 3.5 billion dollars worth of Euro bonds and sukuks as well as gain access to other bilateral and multilateral assistance.
The reason, he added, is because being on an IMF programs sends a positive message to investors/donors that the debtor nation will continue to set economic policies within the framework agreed with the Fund.
This rationale is supported by the statement of Finance Secretary, Dr Waqar Masood, during a recent road show in London to lure investors to subscribe to a further issuance of Euro-bonds that the government may well go on another IMF programs when the ongoing 6.64 billion dollar Extended Fund facility (EFF) ends next year. Masood, no doubt, was compelled to make this statement in response to concerns by prospective investors relating to the direction of policies post-EFF.
Dr Pasha, contrary to Masood’s statement, argued that he did not consider it likely that the government would begin a new IMF programs as soon as the existing one ends in the last quarter of 2016 for mainly political reasons.
An IMF programs, he maintained, would almost certainly limit the government’s capacity to invest in development expenditure, a politically expedient measure prior to the general elections, as the focus would remain on budget deficit reduction.
To fund a rise in development expenditure that would be required to fuel growth and spread a feel good factor amongst the public prior to the 2018 general elections, may well be at the cost of raising the budget deficit.
This is almost a certainty because the government has been unable to check the rise in current expenditure, irrespective of claims to the contrary, Dr Pasha contended.
The window of opportunity to propel growth through large injections into development expenditure would be limited to 2016-2017, as by the subsequent year, many of the loans incurred would become due, including the repayment of the ongoing IMF programs, the debt rescheduled under the Paris Consortium and the one billion dollar worth of Euro-bonds that would be maturing.
These are some very astute observations and unfortunately they have elements of truth. The Dar-led Finance Ministry has been unable to check current expenditure and reports indicate that this accounts for his agreement with the Fund under the ninth mandated review recently held to reduce the development expenditure from what he budgeted for 2015-16 by around 20 to 25 percent.
This reduction would not only impact on growth but may also compromise the only investment that has the capacity to turn the economy around; namely, the China-Pakistan Economic Corridor (CPEC) because the government would simply not have the necessary capacity to release its share in these projects.
Economists, including Dr, have suggested to the Dar-led Finance Ministry to strike a balance between deficit reduction and the outlay on development, and further maintain, that the Fund would be amenable to such a balance if argued logically.
By focusing on deficit reduction via mini-budgets, envisaging higher revenue through higher indirect taxes whose incidence on the poor is greater than on the rich, due to unrealistic budgeted revenue estimates and slashing development expenditure to meet these targets, is simply stifling the economy.
To place the blame for such ill-advised policies on other ministries, including Commerce and Trade and Industrial Production as well as Board of Investment that are largely dependent on macroeconomic policies that are formulated and implemented by the Ministry of Finance is simply not appropriate.
And lastly, routine data manipulation needs to stop and though it does hoodwink critics to some extent, both within the PML-N and members of the Opposition, yet it disables the Ministry of Finance from formulating suitable policies to deal with the economic issues.