WITH the IMF preparing to keep a strict eye on every dollar that it plans to give Pakistan under its recently resumed $6bn programme, it looks like the PTI government has its work cut out for it. Can anyone blame the global lender for being so distrustful of Islamabad’s commitment to reforms agreed under its funding programme? Pakistan has entered into 13 IMF programmes since 1988 — the current bailout signed in 2019 being the latest — to tackle its repeated currency crises. Most programmes were abruptly abandoned midway without implementing the actions agreed to.

The PTI government is no exception. It tried to abandon the programme in April last year in order to pursue rapid growth to provide ‘relief’ to Pakistanis who are dealing with rising costs of living and unemployment. Its return to the IMF, which was preceded by the execution of five ‘prior actions’, including the withdrawal of substantial tax exemptions and the grant of absolute independence to the central bank, has left many wondering if the government can sustain the reform momentum after the end of the funding facility in September as the country enters election mode. This is not surprising if the Washington-based lender has tied the future financing of $3bn under the programme to the implementation of more actions and the achievement of the targets.

That political expediency has kept successive governments from dealing with fundamental structural challenges faced by the country’s economy is evident in the fact that no administration, military or civilian, has attempted to fix the state-owned enterprises — which have been a huge financial burden on the exchequer — despite being on almost every IMF programme agenda in the last three decades. However, things could be different this time. The IMF has linked the continuation of its programme to the parliamentary approval of a new SOE law, already introduced in the National Assembly last year, by the end of June. The proposed law does not suggest anything radical. Yet, if approved and implemented in letter and spirit, it would pave the way for ensuring transparent management and ultimately disinvestment or privatisation of most SOEs whose contingent liabilities at almost 8pc of GDP are posing considerable fiscal costs and risk to the country’s debt sustainability. The progress on SOE reforms must reduce contingent liability risks and improve the business environment. PTI policymakers should have realised from their experience of the last few months the need for sustained progress on the SOE sector, energy and tax reforms — with or without the IMF — and reduction in the footprint of the state on the economy for stabilising the latter, improving domestic productivity and sustaining a faster growth rate. The government’s commitment to stick to the economic reforms agenda beyond the IMF programme is going to determine whether its successor will need to turn to the lender of last resort for another bailout.

Published in Dawn, February 16th, 2022