Pakistan: IMF satisfaction on economy-- a delusion

After quarterly review under the three-year $6.6 billion Extended Fund Facility (EFF), the chief of the visiting International Monetary Fund mission Jeffery Franks has expressed satisfaction over Pakistan's economic progress, saying budget deficit is broadly satisfactory and the government borrowing has been within the target. As expected, the IMF appreciated the government's move to reduce subsidy on electricity and its work on the restructuring programme to improve the performance of the power generation & distribution companies. The mission will present its report to the IMF Board scheduled to meet in the third week of December following which the second tranche of $587 million will be released to Pakistan.

Apart from the IMF installment, the report will induce confidence in other donor agencies negotiating with the Pakistan government on various development projects. Interestingly, the IMF has made upward revision of the GDP projection to 2.7 per cent from 2.5pc for the current fiscal year because of improved performance of the economy. Amidst frequent bombings, target killings, cruel increase in taxation which is mostly directed at common man and increase in oil prices, the all-is-well stamping on the improvement in economy from the IMF is the most astonishing outcome that the government has achieved. But the ground reality is that Pakistan will continue to suffer challenges on the balance of payments for which the State Bank of Pakistan may have to buy more foreign currency from the open market to build up its much-needed foreign exchange reserves as the stagnant large scale manufacturing sector and shrinking export base are no longer the engines of the economic growth. Amidst the delay in flows of the Coalition Support Fund and other external loans, the current account deficit is also above the target. Continuous devaluation of rupee, rise oil & power prices are persistently pushing up industrial input cost thus rendering cottage, small and medium industry unviable. Having high cost of doing business in Pakistan, the economy is going nowhere rather making side-ways movement; Thus those reading too much from the satisfaction of the IMF are grossly mistaken as the improvement in the economic indicators are more cosmetic in nature. And the IMF programme is seemingly designed to help Pakistan meet its obligations, including about $5bn in outstanding debt on an earlier $11bn IMF loan package. Seeing beyond the clutches of loans, Pakistan's economic and financial managers should sit together to steer the country out of the economic mess. We strongly advise that the concrete efforts should be made to bring down the input cost of the industry. The oil constitutes major raw material for industrial and agriculture sector thus the government should immediately revamp the price fixation formula to rationalize prices of the petrol and petroleum products to put the industrial wheels in motion. Secondly, the government is banking far too heavily on increase in the across the board rate of the GST rather than making the taxation machinery effective against the rich, having bigger business concerns. No matter what the government claims the fact is that even today the tax administration needs to undergo reforms to enhance tax revenue to cut down current account deficit and the government borrowing. The prime minister has promised to do away with the loss-making public sector institutions to lay off burden on the national exchequer. The privatization plan has been approved but it is yet to kick off. We advise to execute the plan to rescue the underfunded public services. In practical terms, mere satisfaction of the IMF can fetch loans for Pakistan but cannot bring some respite for the people of Pakistan. A state should be run like a state but not like personal business that a chartered accountant looks after and brings laurels for the boss. IMF says the economy of Pakistan is growing but the vast majority of the population is finding it hard run their kitchens. Hence the so-called economic reviews of the IMF remain a magnificent delusion.