Biting the IMF bullet

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Pakistan needs to borrow a lot of money if it is to find a way out of the appalling mess it inherited from its predecessors. More money than the Chinese or the Saudis or any other financial well-wisher has got or would be willing to loan. The hard reality is that the only entity with pockets deep enough to bail out Pakistan is the International Monetary Fund (IMF) and despite all the dodging and weaving of the first half-year of governance the IMF is the only fiscal port that is going to satisfy the exchequer. Reality avoidance went down to the wire, but on Sunday 10th February there was a meeting in Dubai on the outskirts of the World Governance Summit between the Prime Minister and the Managing Director of the IMF. Close observers of body language will quickly deduce who was the Alpha player. They were not Pakistani.

Whatever was going on front-of-house, in the backchannels much work has already been done with the IMF. The PM took to Twitter to announce that there had been ‘a convergence of views’ and that the reforms that are the conditionalities of the IMF loan would put the country on the path of sustainable development. The reforms are deep and structural, have been the writing on the economic walls at least for the last decade and can no longer be avoided. The weakest and most financially vulnerable will be protected averred the PM, which if proven to be true will be a first for any government since Independence.

For its part the IMF has reiterated that it stands ready to support Pakistan, a reflection of the fact that both sides need one-another, if differently. Those that fund the IMF including the Americans have an eye to regional stability and the advances on all fronts of China and Russia, with the Saudis not much more than bit players in terms of real muscle. The Chinese are now firmly embedded in the Pakistan economic narrative and have their own agendas to work through. Russian military hardware is increasingly evident. An IMF deal is going to give the Americans an arms-length engagement with all matters Pakistan and a visit to the White House by the PM has already been bruited about, outcome uncertain.

Complex economics and geopolitics aside and assuming the IMF deal is sewn up the effects are likely to be felt well before the year end. Life is going to get more expensive for the common man, the value of the rupee is going to drop further, all utilities are going to have to be priced upwards and somewhere, somehow, the rich are going to have to be taxed far more effectively than they are today. The bleeding public-sector entities are unsustainable and must come off life-support. The IMF want matters to move forward more quickly than feels politically bearable for the government, which is going to have to eat large helpings of humble pie.

At the heart of reform is what is known as the ‘primary balance’ and the IMF is looking for cuts in subsidies, defence spending and debt servicing with the latter being the eternal albatross. How any of this is to be achieved remains a mystery, but at some point in the very near future the government is going to have to tell the population what is going to be the price to be paid individually for the restoration of the health of the national economy. Protection for the most vulnerable segments of society? Perhaps, but the buck has finally stopped. Your call, Prime Minister.

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