Will it be possible to abstain from coming up with popular policies?

July 21 - 27, 2003



Reportedly Pakistan has declined the offer of International Monetary Fund (IMF) for entering into second PRGF programme. It should not be surprising because Shaukat Aziz, Minister for Finance and Economic Affairs had been saying for quite some time that it was Pakistan's last programme with the IMF. However, an earlier than expected offer from the IMF and a prompt turndown surprises many Pakistanis.

Some critics of present economic regime say that it is a political gimmick because of the prevailing arrangement under the PRGF. The IMF should have not made the offer at this juncture. However, the fact of the matter is approval of any assistance facility by the IMF takes 12 to 18 months. However, it is interesting that normally the borrower approaches the Fund but this time the IMF offered the facility to Pakistan in advance. May be because they wanted to share the appreciation that Pakistan has been meeting the conditionalities of the ongoing PRGF. Both the IMF critics and the Fund itself know that this time meeting the conditionalities or not meeting was not the criteria for disbursement of the tranches. It is yet another thing that despite the global downturn, Pakistan succeeded in meeting all the targets, including the most difficult one of revenue collection. Pakistan rather surpassed the target.

Pakistan's external debt and debt servicing had attained a level where default looked imminent. However, in the post 9/11 era the situation changed altogether. One should not forget that the IMF played the key role in reprofiling of Pakistan's external debt. This brought down the debt servicing to a sustainable able. However, achieving the export target of US$ 10 billion and accumulation of foreign exchange reserves of over US$ 10 billion were the result of relentless efforts of Pakistan's economic managers.

The IMF had time and again expressed its disliking on the way State Bank of Pakistan was accumulating dollars, through buying from the kerb market. Not only that, the monetary and fiscal policies of Pakistan helped in building reserves, the interest rates have also come down substantially. Though, the critics continue to complain that the benefits have not trickled down to common man, they cannot deny that stable exchange rate has helped in containing cost pushed inflation in the country.

The comments being made on the refusal are poles apart. Some analysts believe that Pakistan should have accepted the offer. Whereas others say that by staying out of the IMF assistance programme Pakistan could formulate and implement policies, which would have not been possible otherwise. People who have always been critical of the IMF say, "The IMF has plunged most of the economies, including Pakistan, deeper into problems. We are lucky that for the first time, we have attained economic sovereignty. Pakistan has never been entirely dependent on the meagre amount being received from the IMF but was forced to follow the dictate."



Whereas, the analysts who are the ardent supporters of IMF say, "The government should not totally write-off IMF at this juncture. Probably, Islamabad needs this kind of strict supervision for another two years. And within this time period, the government should try to establish a proper control and command authority within the Ministry of Finance. Pakistan is running with a very high risk, i.e., what if Mr. Finance Minister decides to leave his job. There will be no one to replace him. It's politically a popular slogan to say good-bye to IMF but borrowers normally don't stop banking in good days.

It sounds strange that some experts have greater faith in the IMF conditionalities than our own economic managers. Do they forget that when present economic managers presented their plan most of the lenders were skeptical. Till what time this nation will live on the crutches of multilateral lenders. It must come up with its own indigenous plan and work wholeheartedly to achieve the set targets.

Aqib Elahi Memboob, Head of Research at AKD Securities has his own point of view. He says. " Declining the IMF offer sends positive message to international investor community. It allows the GoP to make policies as it suits Pakistan's interest. It allows longer term planning and reduces market anomalies that occur as the government makes last ditch effort to meet quarterly targets."

Whether Pakistan opts for the IMF assistance or not a few things should always be kept in mind. Pakistan still carries a heavy load of external debt. A large percentage of total population lives below the poverty line. Per capita income is pathetically low. Therefore, the effort should be to ensure trickle down benefits of economic revival to common man. This cannot be achieved by introducing popular policies but only through enhanced economic activities, creation of new production facilities and job opportunities and going for higher value addition to attain greater share in global markets, to mention a few.