KARACHI: The latest IMF programme has given some in industry circles significant grounds for anxiety while others, mostly from big business, are taking heart that in the longer run the programme could help rectify some long-standing imbalances in the economy.

Meanwhile, economists say the details will reveal far more than just the scale of the adjustment that the government has committed to, since the language of the press release issued by the IMF, which is the only official communication on the matter thus far, contains a lot of loaded language.

“What does it mean when the fund says that the programme will be implemented only after confirmation of international partners’ financial commitments” asks Dr Hafeez Pasha, former finance minister who was pulled into the talks with the Fund briefly right before the delegation led by Asad Umar departed for Washington DC for the Spring Meetings, where he led the last round of the talks before being ousted as finance minister.

“This is very worrying” he says. “Are they saying that the deposits made by other countries for balance of payments support must be rolled over as part of the programme conditions?” He says Fund programmes are supposed to protect a country’s international obligations and balance of payments, not insist on conditions for international creditors.

IMF statement contains loaded language; in long-run, the bailout will be a positive, says PBC

Beyond this language, he points to the commitment on Anti Money Laundering and Counter Financing of Terrorism as another area of concern. “Is the fund programme going to be subject to clearance from the Financial Action Task Force now?” he asks.

Third, he says the language on the NFC award and the provincial transfers is another area of concern. The IMF statement says the government will seek to “rebalance current arrangements” with the provincial governments “in the context of the forthcoming National Finance Commission award”.

“This is a constitutional issue” says Pasha. “Under the 18th amendment the provincial shares under the NFC award cannot be reduced, the government should not have agreed to this.”

Another area where loaded language can be seen is on trade. “The statement talks about facilitating trade” he points out. “This seems to mean a rolling back of the various import compression measures the government has announced, as well as export incentives.” Eventually the programme will leave the government with only one tool with which to promote international trade he says, and that is the exchange rate.

Beyond these concerns, he says the approximate reduction of 1.6 per cent of GDP that the fund is aiming for in the primary deficit “will be very challenging but what I am particularly concerned about is that implicit behind all this is some pressure on defence spending” he says, pointing out that the statement specifically calls for “preserving essential development spending” while reducing the primary balance.

“Primary spending includes development and current expenditures minus debt servicing” he says.

“If you are saying development spending cannot be cut, the only other area left for large cuts or caps is defence spending.”

Export industry in Punjab seems to be very concerned about this direction. “We have two main concerns going forward” says Zia Alamdar, President of the Faisalabad Chamber of Commerce and Industry. “Do not roll back the zero-rating on sales tax that the export-oriented sectors of economy enjoy,” he says, “and do not roll back the incentives offered on gas and power pricing.” Beyond this he says industry is also concerned about the fate of the sales tax refunds that they have been promised on numerous occasions by the government, but nothing has been delivered thus far.

Ehsan Malik of the Pakistan Business Council, a group representing all large business houses of Pakistan that largely operate in the domestic market, says the programme was necessary even though it will be a bitter pill to swallow in the immediate term.

“This is something they should have done right away” he says, adding that the government’s strategy of playing for time has not paid off.

“The conditions would have been as severe back then as they are now.”

He says there is significant more adjustment to come, but the silver lining here is that this might force the government to take those steps that are necessary for the economy.

Dr Kaiser Bengali said the programme is “a joke” because it is the product of the IMF talking to the IMF with the government as a spectator. “Why didn’t Hafeez Shaikh and his colleagues take any of these steps in their previous stints in power” he asks. “At the end of the day, I believe this team is here for one task only: to privatize the state owned companies.”

Published in Dawn, May 14th, 2019