Should the country resume IMF program? Imran Khan’s government continues to emphasize Pakistan’s economic recovery. It points out that the current account for the past four months is increasingly positive which is happening for the first time in the past 50 years; exports are up month over month for the past five months, homebound remittances are continuously increasing, state bank policy rate is down to 7% and it argues that the 9% inflation rate will further come down.
It goes without saying that government ministers and PTI supporters believe that all this is due to the strong and politically unpopular policies adapted by the Imran Khan government enacting the IMF program, many in the big businesses readily agree. While many noted economists of the country agree that overall, the economy appears to be in the right direction, they don’t buy government’s “cause and effect theory”
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In the last week of November, these assertions and counter assertions led to an interesting tv debate on 92 News. Anchor person, Dr. Moeed Pirzada invited Dr Ashfaque Hasan Khan, noted economist and Dean of the School of Social Sciences and Humanities at National University of Science and Technology (NUST) in his program, Hard Talk.
Dr. Khan, who has previously served as an Adviser to Pakistan’s Finance Ministry argued that while current account is positive, exports are up, interest rates are down, and business confidence has improved it is mostly due to the suspension of IMF program from February 2020 onwards. Pakistan is in IMF program from early 2019, but in February due to the global pandemic, it was suspended for an indefinite period.
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Dr. Khan argues that once the program is resumed, the government will be under pressure to raise interest rates and utility prices, inflation will climb up and then IMF will pressurize the government to further devalue the Pakistani currency (Rs. PKR). Moeed Pirzada followed up this argument, by inviting two of country’s prominent businessmen – Gohar Ejaz, prominent exporter and Aqeel Karim Dhedhi, known financier – and later the Minister for Industries and Production: Hammad Azhar.
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Hammad has previously served as the revenue minister as well and is part of the economic policy team in Khan government. When Pirzada put forward Dr. Khan’s economist argument, both businessmen strongly disagreed. Pakistan’s Economic Recovery is not due to any relief by IMF Gohar Ejaz, a known textile exporter is currently Patron in Chief of All Pakistan Textile Mills Association (APTMA).
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He was supported by Dhedhi (nicknamed AKD) that rise in Pakistan’s exports has nothing to do with the IMF relief to Pakistan. Both argued that the Pakistani industry, government departments, State Bank of Pakistan and the Ministry of Finance are now working in a concert.
Exporters are getting orders from across Europe and North America, rupee’s correction due to free float against the US dollar has definitely helped exports. But more help came due to gas being provided at US $ 6.50 and electricity at 7.5 cents to the industry – however, both argued that this is a concessionary rate for a fixed three-year time period and is not against IMF conditionalities since it only brings Pakistani energy rates at par with the region.
AKD also added that even if current account becomes a bit negative in the subsequent months, it won’t be a problem since the country now has sufficient US $ reserves. He told his tv audience that according to IMF estimations Pakistan’s inflation rate was bound to come down by the end of 2020 – and this is precisely what is happening.
Both Gohar Ejaz and AKD believed that current 9% inflation in Pakistan is mostly “food inflation” and is about to come down. Gohar Ejaz though added that Pakistan will need to do smart negotiations with the IMF when it resumes the program to convince IMF that very hard conditionalities don’t help economies to grow.
IMF program similar to Pakistan’s Medium-Term Macroeconomic Framework
Later Hammad Azhar, minister for industries, joined in a separate segment and he argued that IMF program did not arise out of a box. And if we examine “Medium Term Macroeconomic Framework” that was decided by Pakistan’s own Ministry of Finance, by 2019, then it was very similar if not identical – to the IMF program Pakistan later signed. He told his audience that “three-year concessional energy rates” for industry will not be changed – as this had IMF’s approval.
He added that the only real relief IMF has allowed Pakistan because of the pandemic was the “Rs. 1200 billion Relief Package” to the public in March/April – something not possible in an IMF program; but in that case, IMF was reacting to an unusual situation of a world-wide pandemic. His argument was that Pakistan has to do the same corrective measures and reforms to fix its economy for long term as what is being asked by IMF. And if IMF wants Pakistan’s current account deficit to come down and its tax collection to rise, then it’s only in the interest of Pakistan.
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The advantage of being in the program is that while Pakistan reforms its economy, it has access to multilateral funding from IMF, World Bank and ADB etc. Earlier Dr Ashfaque Hasan Khan had argued that Pakistan is often compelled to land in IMF’s lap because of the pressure tactics of World Bank and ADB – and all this is part of the “Washington Consensus” of 1980s’.