There is yet another opinion gaining ground in Islamabad, among disgruntled bureaucrats and frustrated politicians. They find fault with the team that negotiated the deal with the lender. They argue that a better deal could have been negotiated and the government should not have accepted a set of conditions that were not doable in the given time frame. - Illustration by Abro.
Many bureaucrats blame politicians for backtracking on commitments made to the International Monetary Fund while others put the onus on the elite unwilling to chip in its due to the public kitty.Amid differing views, it is argued that it was politics more than economics that led to the midway suspension of the IMF programme.
There is yet another opinion gaining ground in Islamabad, among disgruntled bureaucrats and frustrated politicians. They find fault with the team that negotiated the deal with the lender. They argue that a better deal could have been negotiated and the government should not have accepted a set of conditions that were not doable in the given time frame.
The IMF suspended the loan disbursement in May 2010. In a subsequent comment, the multilateral lender dissected the country’s economy and identified its areas of concern. The widening gap between politicians and officialdom in Islamabad over the way forward was said to be responsible for the delay in settling issues raised by the IMF and for the Fund holding up disbursement of the remaining credit or part ways with the IMF by ending the programme.
In 2008, as financial stress mounted to touch a dangerous level, the economic team led by the then finance minister Shaukat Tarin negotiated a 34-month $7.6 billion Stand-by Arrangement that was later enhanced to $11.3 billion, citing the country’s needs. The programme was suspended in May. A visit to IMF headquarters in Washington DC by Finance Minister Dr Hafiz Sheikh in August led to extension in the loan period by nine months in December 2010.
In its observation on the state of Pakistan’s economy available on the IMF website, the IMF lamented the slow pace of progress on the chartered reforms, that it maintained, has further weakened the fundamentals and clouded the prospects of accelerating growth.
The IMF further noted the cut in the sales tax exemptions and strengthened refund mechanism but found it to be little and late to support financial stability. The regulatory oversight of the financial sector was also found to be weaker than required and movement towards the State Bank autonomy dawdling.
For record, the agency also raised concerns about the limited scope of social security net. It politely warned that the absence of visible speedy structural reforms would waiver confidence in the commitment of the democratic government to the agreed agenda and impede capital inflows from both multilateral agencies and private investors.
“The reforms are not easy anywhere but in troubled developing countries like Pakistan implementation is by far more difficult. The government has to tread cautiously. The IMF needs to appreciate the efforts in this regard and show a little more flexibility”, a big gun of the ministry of finance argued.
“We are on the agreed track of widening and deepening the tax net. Yes, the speed is not what the IMF wished or we projected. They need to realise that many of these reforms would hurt family budgets of people in already stressful economic conditions. The public sentiments had to be heeded”, he defended the government.
Ex -finance minister Shaukat Tarin lamented the ‘free rider mindset’ of the elite. He was furious over their manipulations that, he said, was costing the country dearly.
“You cannot hide behind any argument. The tax to GDP ratio is pathetically low. It needs to be improved. Yes, everyone who earns well in this country should share the cost of running the country. I firmly believe that there is no way but to tax untaxed incomes, remove exemptions, rationalise subsidies, minimise market interventions to improve productivity and achieve stability”, he said.
“During my stint with the government, I brought four services in the tax net and introduced a host of measures to improve resource mobilisation and reduce avoidable subsidies. Had I continued, I would have asked provinces to tax agriculture income and the retail sector”, he insisted.
He rejected firmly the criticism directed towards him on the stiff IMF conditions. “I found the IMF very accommodating. I did not have to compromise on anything. We set the agenda in the light of the economic guidelines of the budget 2008 by the then finance minister Naveed Qamar who preceded me. They suggested increase in the interest rate by five per cent and that was about all.”
“It is wrong to blame others for ones’ follies. The vested interest is playing games and manipulating public opinion against reforms to protect their own narrow interest at the cost of the country. Why would any one else care if we are not ready to do the same ourselves”, he roared.
Some other senior members of the economic team blamed populist tendencies and lack of economic insight of the current crop of politicians.
“They already have their eyes on the next elections. They are reluctant to do anything that may earn them the ire of powerful lobbies. Neither do they comprehend the gravity of the situation nor they care to make an effort to understand”, said a finance ministry officer.
“We go a step forward and two steps back. The outcome to me is expected. There is a need to develop social consensus in favour of reforms. The media has a huge role to play in this regard but it seems to be more inclined towards frivolous juicy stuff and finds growth and development boring as subjects”, Dr Nadeem ul Haq, Vice Chairman Planning Commission told Dawn over phone.
“To my mind the suspension of the IMF programme is an outcome of strained US-Pakistan diplomatic relations. It also demonstrates the bias of lenders against a democratic government . This is their way of pressurising us to fall in line”.
“I believe the democratic government is cornered by lenders and enjoys a reluctant support of business; it is caught between a devil and a deep blue sea. It is faced with multiple challenges with a low 2.5 per cent GDP growth, high inflation rate of over 15 per cent and persistent fall in local and foreign direct investment, that is leading to more unemployment and poverty”, said an analyst in federal capital.
