WEB DESK: After Pakistan met all the indicative targets fixed by the International Monetary Fund (IMF), on end December 2015, the Fund has now fixed six new benchmarks for Pakistan to adhere to under the 6.64 billion dollars Extended Fund Facility.
Since some of the Directors on the reconstituted Central Board of Directors of State Bank of Pakistan are new appointees to the reconstituted Board, the IMF wants them to flex their muscles and build some kind of profit distribution rules and also provide the law which gives Central Bank ability to build SBP reserves and provide the directors the powers to stop the government from plundering State Bank of Pakistan (SBP) in order to reduce its fiscal deficit.
This new benchmark had become necessary as the Ministry of Finance was taking away all the profits accruing to SBP for its usage. But what the Fund’s staff conveniently forgot that these directors are nominated on the SBP’s Central Board by the government itself, and they usually do the bidding of the government and try and keep the Ministry of Finance in good humour, leaving it to Governor SBP, also a government appointee, with a tenure, to resist any kind of pressure alone. A recent example is the government’s assertion that electricity power projects under the China-Pakistan Economic Corridor (CPEC) are private investment and are therefore not the government’s responsibility to pay back.
This is not true. SBP would need to provide dollars from its forex reserves to pay back any amount for which a sovereign guarantee has been extended in rupees. SBP’s forex reserves provide the cushion that the debt (public or private) loan contracted has to be serviced by Pakistani investors even in a JVC. Therefore, in the 2nd quarterly report of SBP a figure of six billion dollars for debt servicing is given. This figure is low and is meant to ‘shut-up’ the opposition’s concerns about the continuous fall in exports and the recent rise in current account deficit. The nation expected SBP not to toe the governmental line and instead inform the policymakers what kind of growth would be needed when the projects envisaged under the CPEC near fruition.
And, what kind of debt servicing cost in reality would accrue under CPEC. After all, SBP’s analysts are familiar with the power policy fixed by Nepra and 38 billion dollars of power projects, even in the private sector, would need repayment of debt as well dividends by SBP itself. So unless we corporatize SBP and create provincial boards of directors with recommendatory powers as well as representation on the Central Board of Directors of SBP it would remain business as usual. Federalism needs to be practised as envisaged and unitary system needs to be abolished to keep the nation and country intact.
The Fund has come up with an observation that 4.5 percent growth in GDP is inadequate. Pakistan expects from the Fund experts to tell them how much growth is needed and what should be the roadmap to achieve it. Should it be more than six percent or should it be as high as 8.5 percent to employ the teeming millions of unemployed youth. But sadly the Fund’s recipe for help is stabilisation of economy; growth is not its priority. A home-grown programme is needed to answer the challenges we face to get out of the present mess we have landed ourselves into.
Pakistan at the moment does not have any kind of industrialisation plan. The country has abolished Development Financial Institutions (DFIs), eg, NDFC, PICIC, IDBP which it had and thus far has also failed in creating an infrastructure development bank. Money is available. However, the funders require a feasibility report or a business plan. We have them. But thus far the hallmark of a new government is to abolish the plans of their predecessors and resort to ad hocism. Taxation policy also needs to be supportive of industrialisation which at present is not.
The IMF appears to be telling SBP directors to enforce the SBP Act instead of injecting more into the system in the garb of payment settlement. The question whether or not SBP do it has no easy answer. After all, the directors, governor as well as deputy governor are the appointees of the government and not the Parliament. A new benchmark is being created for budgetary support. The Fund wants the government to spend only what it collects as revenue which will not happen.
The nation is afraid that once the IMF programme is over and the present government is faced with elections it may fritter away the gains made so far by following in the footsteps of the Musharraf/Shaukat Aziz government. We also need to remember that without the IMF umbrella we would be borrowing at much higher cost from the international capital market as the risk premium will be higher.
Developing countries like Pakistan need the IMF stamp of approval and IBRD’s (World Bank) to access the international capital market. Our politicians also need to be disciplined as the bureaucrats are helpless when political decisions trump economic ones. Institutions created under the Bretton Woods agreement have survived since the World War-II. They may not be as effective as they once were. But the world is hard pressed to replace them.
Source: Business Recorder