That the Fund facility is on track is not that merry a news. Economists tell us that the government is taking the right steps. Yet, it cannot be lulled by the recent note of satisfaction issued by its benefactor. Why so?
IMF lures the bad boys of the world economy into one of its programmes and encourages them to behave. Both live through mutual dependence, just like banks and the greedy. One needs to lend money the other one is coveting for. Yet, if the contract goes ‘off-track’, the deal stands suspended. And remember who we are talking about? IMF and the bad boys.
Out of the paper, into the real world, things are not that simple. IMF needs to appreciate its role in making a programme successful. In only 7 out of 20 IMF-programmes in Pakistan could the pre-agreed amount be drawn. Most of these were suspended before completion. Needless to say, the absence of political will of the ruling parties resulted in poor success rate.
Yet from an institutional perspective, the IMF’s irresponsible lending in the first place, followed by its inability to make the governments accountable at earlier stages of the programme is a compelling explanation. In 1994-97 period alone, Pakistan government entered 6 IMF-programmes: 2 Programmes every year. All failed. But the IMF was generous enough to keep lending for one after another.
This brings us to an inherent problem IMF-designed adjustment programmes. For the Fund, the incentive to term a programme ‘off-track’ is least in the beginning, as early derailment would reflect irresponsible lending. The result is poor programme compliance goes unpunished initially, only to strike back later when the programme is altogether suspended.
How impeccable is the design of the on-going IMF-programme and how much pressure the IMF is putting on the government to pursue the ‘right’ policies remains beyond the eyeshot of common man. But the signs are mixed. For one, it seems too cheery for the Fund to issue note of satisfaction with foreign reserves crippling, rupee depreciating, & foreign portfolio investment falling. One may surmise that the medium-term outlook of the Pakistani economy must be encouraging, and that must be the basis for IMF’s optimism. But it is not. On the contrary, the IMF has revised its forecasts for GDP growth and the current account downwards, for Pakistan as well as globally.
Lastly, it cannot be overemphasised that the government is being a little too optimistic in expecting mere fiscal consolidation to get the wheel of the economy rolling. Appease Taliban or launch a full-fledged assault, it does not matter to investors. What does is a clear vision and an articulated strategy to create a supportive, safe, and thriving business environment over the years, where property rights and contracts would be enforced. If the government keeps delaying critical decisions in the political arena, all we get at the end of an even ‘successful’ IMF programme will be another mountain of debt.
(An earlier version of this post appeared in the daily Dawn)