WEB DESK: In a press release attributed to the state-run news agency, Prime Minister Nawaz Sharif, informed the mid-level visiting International Monetary Fund (IMF) delegation led by Masood Ahmed, the Director of Middle East and Central Asia accompanied by Harald Finger, the Mission Leader for the ongoing 6.64 billion dollar Extended Fund Facility, and the Resident Representative for Pakistan Takhir N. Mirzoev that Pakistan was on track to complete the Fund programme for the first time in its history. This claim is incorrect as Pakistan also completed the Fund programme during Musharraf’s tenure and one is baffled by the fact that the Federal Finance Minister Ishaq Dar, present during the meeting, failed to properly brief the Prime Minister on this score.
The Prime Minister also stated during the meeting that the country would not need to go on another programme. This claim too is highly suspect, given the number of foreign loans that would become due for payment in the next two fiscal years. These include repayment to the Fund for the ongoing programme, loans procured from the Paris Consortium, the interest payment on 5- and 10-year Eurobonds at 7.5 and 8.5 percent, respectively, as well as on sukuk at 6.5 percent. In addition, the government raised its commercial borrowing from abroad from the budgeted 200 million dollars to over 900 million dollars. The government has also upped its reliance on domestic borrowing, thereby crowding out private sector borrowing, as concessional sources of foreign borrowing dry up.
With exports declining and the current account deficit becoming a source of serious concern, remittances are the only positive element of the economy which are likely to taper off as has already been evident in the case of India and Bangladesh. There is intense speculation that the Sharif administration’s decision not to go on another IMF programme, is therefore, not premised on our economic needs based on the Dar formula to heavily borrow internally as well as externally but because 2018 is an election year and the government, like its predecessors, is expected to allocate massive outlay on mega development projects thereby generating an unsustainable budget deficit like its predecessors. It may be recalled that 2008 and 2013 election years’ deficit was over 7 percent.
The Prime Minister also informed the Fund staff that his administration is committed to further improve its economic performance, achieve higher growth rate and contain fiscal and current account deficits. These are salutary targets that are supported by all, including economists. Unfortunately, however, the prevalent policies since the PML-N took over power in June 2013 do not reflect the fact that the attainment of these objectives is a priority for the government.
The focus on reducing the fiscal deficit even after some stabilisation was achieved by the government, particularly with respect to shoring up our reserve position, through heavier than ever reliance on borrowing that continues to compromise growth. Finger, when asked to clarify why the Fund was focused on reducing the deficit which was negatively impacting on growth, in an exclusive interview to Business Recorder nearly 11 months ago, surprisingly stated, that there is no such linkage in Pakistan, given our significant imbalances which include debt over 60 percent of GDP, 40 percent of government expenditure earmarked for interest payments, banking sector funding a large portion of the government borrowing requirements, an overvalued rupee, load-shedding and the need to improve the business environment.
These “imbalances” have significantly deteriorated during the last year with debt around 65 percent of GDP, interest payments taking up an ever-increasing chunk of our budget, budgeted development spending cut by 25 percent this year attributed to the Fund’s prodding to meet the fiscal deficit target, and the rupee, according to the latest Fund report, overvalued by between 5 to 20 percent. The improvement in business climate, restructuring of public sector entities and/or their privatisation remains stalled with flawed executive decisions taken with respect to senior appointments. The Fund in the 10th latest review reported that the energy sector over-performed but this over-performance was limited to reducing the flow of arrears, current arrears, with no improvement in reducing the stock of arrears – a no mean feat.
And, while Ishaq Dar has been claiming across-the-board successes in his management of the macroeconomy, yet the fact remains that our growth rate, budgeted at 5.5 percent in the current year which even the Fund has downgraded to 4.5 percent with independent economists like Dr Hafiz Pasha further downgrading it to between 3 to 3.5 percent, is unlikely to be achieved without data manipulation. Exports have declined due to an overvalued rupee and delay in refunds, which cannot be manipulated, non-oil imports have risen even though oil imports have declined due to the declining international oil prices, compelling the government to rely on higher borrowing levels than ever before. The fiscal space, created by a lower oil import bill with higher taxes on petroleum and products accounting for around 25 percent of total tax revenue, has been eroded by the same flawed expenditure priorities: higher current expenditure and slashing development spending, a pro-growth activity, to meet the deficit target.
In what was clearly an attempt to undermine Pakistan’s democracy, Masood Ahmed in his interaction with the media, emphasised the need for a national consensus on core economic issues to prevent short-term risks from emerging and to address the underlying structural issues, a view echoed repeatedly by Dar, urging political parties to agree on a charter of democracy. While all political parties throughout the world have the same economic objectives, including high growth, low reliance on foreign and domestic borrowing as well as a sustainable deficit, a fair and equitable tax system and higher allocations for development as opposed to current expenditure yet each political party in a democracy formulates its own policies to achieve those objectives. In economics, after all, there is usually more than one way to achieve these objectives.
And while the Fund does have standard normal conditions, which explains why from dictatorship to a democratic dispensation, Pakistan – the perennial Fund borrower – has followed similar policies. Yet, the country has established its democratic credentials for the past nine years, and in this context it is unlikely that either the PPP or the PTI is going to follow the Dar route for economic stabilisation which, as per independent economists, has had extremely limited success.
Source: Business Recorder