Prime Minister’s Advisor on Finance Shaukat Tareen has rightly pointed to the need for re-profiling economic growth — reversing its 2002-08 consumption oriented profile — but has offered a very general nine-point agenda there for.

This tough task needs much more — a production-driven agenda drafted with purposeful input of all stakeholders to instil in them a sense of commitment to, and ownership of these plans.

Until October 30, he was promising in-depth discussions with stakeholders to conclude this agenda implying thereby that the borrowing request to the IMF had not been finalised. But, quoting an un-named Ministry of Finance source in Islamabad, the Financial Times (FT) reported on October 29 that a deal with the IMF was in final stages, which left everyone wondering.

Subsequently, on his return from Dubai on October 30 after negotiations with the IMF, the secretary finance confirmed that an economic stabilisation plan had already been submitted to the IMF and what remained to be agreed with the IMF were the amounts of the emergency and standby borrowing to be obtained from the IMF; according to him, this too would be decided in a couple of days.

The same evening, TV channels announced that the agreed loan amount was $9.6 billion and its tenor 21 months. That IMF had dropped its tough conditions, particularly about hiking SBP’s discount rate by 3.5 per cent. What is the truth may (hopefully) be known by the time this write-up is published but for now, the likely impact of IMF’s usually harsh lending terms paint a bleak picture of the future.

Besides the inherent inefficiencies stemming from its management style and its technological base, the industry suffers from high cost of production, a lot of which is attributable to infrastructure deficiencies, the deadliest being sudden and prolonged power outages. Then there is the rising cost of debt servicing that owes itself to high leverage (industry’s own weakness) and the rising mark-up rates.

In this backdrop, the hint about a hike in SBP’s discount rate as one of the key IMF lending terms is shocking. Demanding a 3.5 per cent hike in this key rate (effectively raising loans rates to 20 per cent per annum) is amazing because it comes in the backdrop of promises by Germany and Britain that IMF will lend on soft terms, and the lowering of interest rates globally to revive sagging economic activity.

Cutting subsidies makes sense because it aims to cut consumption, but not when inflation is at its peak. Only IMF experts know how a hike in interest rates accompanied by withdrawal of subsidies will boost industrial competitiveness, both domestically and internationally, to generate the revenues by taxing which Pakistan will repay IMF on time; nobody sees that happening.

There is scant concern among IFIs for the outcome of fulfilling their wishes — liberalising, de-regulating and privatising businesses — while they virtually slept over the build-up of the catastrophe that now engulfs the globe; it necessitates a quantum change in IMF’s mandate. What was valid in the last deceptive decade of economic growth can’t apply to a recession-hit world.

Commenting on IMF’s package for Pakistan, the Wall Street Journal (WSJ) admitted that demands for reducing public expenditure, maintaining a ‘flexible’ exchange rate and ‘raising’ tax-to-GDP ratio all at once are the “beggar-thy-neighbour policies that sent Thailand, South Korea and Indonesia reeling in 1997-98”. Also, that “cutting subsidies is necessary but politically impossible with inflation running at 25 per cent”.

Recent statements of the German Foreign Minister and special representative of the British Prime Minister indicated that IMF’s terms for lending to a country would henceforth be guided by that country’s circumstances. Should we now believe that the IMF is defying the mandate of its shareholders, or is it that its major shareholders are giving countries-in-trouble false hopes? Surely they aren’t doing that.

Those (including myself) who supported borrowing from the IMF are disappointed by IMF’s archaic “one size fits all” approach that won’t work anymore.

This is particularly true for a country like Pakistan that, besides its own failings, continues to suffer because it acted as a proxy of the West in fighting a war that now even the key IMF members agree, was a prolonged dumb act.

According to the WSJ, “Pakistan’s economic wellbeing matters not only for its 165 million citizens but also because it’s a key country in the worldwide war on terror”. The paper recommends that IMF should ask Pakistan to implement “market-oriented reforms along the Chilean and Irish models, not the IMF’s [archaic] austerity prescriptions”. These views echo what the FT had earlier opined in its editorials.

The logic that Iceland, Hungary and Ukraine agreed to a hike in interest rates can’t apply to every country; based on their specific economic vulnerabilities countries deserve differing treatment, as recognised by major IMF shareholders. Yet (until this moment), reportedly, IMF is insisting on fulfilment of conditions that could prove suicidal for borrower countries in the prevailing global chaos.

IMF is ignoring that Pakistan has already done away with subsidies on food and energy although their hurried withdrawal left Pakistan with galloping inflation and one of the highest power tariffs in the world at a time when load shedding is crippling the productive capacity of its industry. It is unfortunate that the IMF ignored that this highly unpopular deficit cutting action had already been taken.

IMF has also overlooked that Pakistan’s major export sector (textiles) depends on imported inputs, and with a sliding rupee, these imports are becoming expensive everyday. Sectors producing for domestic consumption are also heavily dependent on imports and their high-cost output is adding to inflation and weakening the rupee; without cutting their costs economic stability won’t return.

If the IMF conditionality of an interest rate hike is accepted, over time, Pakistan’s industry will price itself out of export as well as domestic markets and close down leaving millions jobless, many in the allied service sectors.

So much for the dream of production-led growth, but credit for its remaining a dream will go to the visionaries in IMF; they worry more about balancing figures, far less about the ground realities.

If ‘Friends of Pakistan’ won’t move until Pakistan is firmly within the net of IMF’s loaning conditions (disclosed by Mr Tareen on the Senate floor), Pakistan must explore with its banking sector the possibility of reducing for a while the high interest rate spreads banks are earning. This move could limit the impact of the IMF demanded interest rate hike, and give industry a chance to survive till things get better.

Simultaneously, the programme for cutting current public expenditure should be implemented forthwith, and reform of the taxation structure and machinery must be accelerated. Together, these initiatives could significantly cut fiscal deficit before June 2009, as rightly demanded by the IMF.