THE writing is now firmly on the wall about Pakistan’s need for IMF support, mainly to pay back previous assistance. Experts had been predicting this for some time, but now the State Bank governor has implied as much and the finance minister has evaded the issue in public rather than denying it. There are two ways, though, in which a country can go to the IMF. It can take the route Pakistan did in 2008 — wait till reserves have plummeted to crisis levels, run to the Fund crying for assistance and to the US for help in persuading the IMF, swallow painful and politically impossible reform measures and then exit a programme without completing it. The alternative is to start negotiations well before the crisis hits, presenting one’s own medium-term reform plan and staving off a global loss of confidence in the Pakistani economy. All signs are that Pakistan is, once again, going to opt for the former route.
The politics are obvious. The last thing the current government will want to do in an election year is to impose a tough reform programme on an already weary population and on powerful commercial lobbies. Better to try to squeeze out Coalition Support Fund payments from the US to provide a cushion for the next few months, leave IMF negotiations to a caretaker set-up and the implementation of a new Fund programme to the incoming government (which will refuse to own it). By which point there could be a full-blown balance-of-payments crisis and the IMF may well have its hands full with Europe’s failing economies. Add to this the state of US-Pakistan relations and Pakistan’s declining leverage with Washington as the Afghanistan withdrawal approaches, and the picture gets even more worrying. The fact that the new budget shied away from bold reform only supports the theory that the current government has little interest in launching a new IMF programme, even if that worsens the problem and eventually makes a tougher programme necessary.
This despite the fact that it is the current administration’s mismanagement that has brought us to this juncture. Pakistan’s external accounts position now hinges on a range of one-off or unpredictable factors, from 3G and privatisation proceeds to American aid and the price of oil. What remains neglected is the need to build the foundations of a sustainable economy, such as a better climate for investors, an improved energy infrastructure with less reliance on imported oil and a broader, more effective tax system. With Pakistani politics’ relentless focus on the short term, another painful bailout might be on the cards.