What a fund! Reflections from DC

Having narrowly secured a visa just before the start of the 2022 IMF-World Bank Group Annual Meeting, I found myself in Washington DC in early October 2022 to attend. This year’s meeting was important. Not only were we in an ongoing fund program, but the country was hit by a flood.

You’re probably wondering why I’m writing this in mid-November and not right after the meetings. I wanted to await the outcome of the meeting, if there was one.

Pakistan didn’t have it easy. My initial conversations with people in the registration queue, other journalists in the press center, and delegates waiting to hear panels as they begin were similar. Every time I introduced myself and said I was from Pakistan, I received a similar response.

“Oh man! You’ve got it really bad these days,” said a delegate sitting next to me as we waited for a panel discussion on debt restructuring.

That got me thinking.

Are we really so bad that most countries know we are bad? Have we really become relevant enough in public discourse? Then I realized, that’s not the good kind of relevance. It can be argued that there is no such thing as bad publicity, but being known for its perpetual state of crisis is not the best possible scenario for Pakistan.

The IMF doesn’t care about Dar

At the last review, the IMF provided Pakistan with $1.2 billion. On October 13, Jihad Azour, director of the Middle East and Central Asia Department at the IMF, said during one of the press briefings on the region that the IMF would send a mission to Pakistan in November after the annual meetings to start preparing the authorities to the next check.

While Pakistan expected the fund to be a little more accommodating than usual in the face of the floods and allowed it to become more fiscally irresponsible, the odds seemed unlikely. “We were saddened by the loss of people and livelihoods in Pakistan due to the floods and we present and reiterate our condolences to the people of Pakistan. As you know, the Fund has been very supportive of Pakistan lately. We have a program with Pakistan that has expanded and expanded. This is to help Pakistan deal with the confluence of shocks, starting with the Covid crisis, where we have offered additional flexibility,” Azour said.

He added that the fund relies on the World Bank and UNDP to assess the damage caused by the flood and the impact on public finances, as well as the impact on the economy and society. He also answered a question about the fuel price subsidies Pakistan experienced earlier this year. “…As in other parts of the world, subsidies targeted at supporting specific items have proved ineffective. I would say it turned out to be very regressive. Therefore, we encourage Pakistan and other countries to move away from untargeted subsidy, which is a waste of resources, and to dedicate those resources to those who need them. I’ll give you a simple example. The region spends 2% of GDP on social protection and in certain cases countries could spend twice as much on subsidies.”

The fact that the IMF is convinced that Pakistan can no longer grant reckless fuel subsidies is illustrated by the fact that the Economic Coordination Committee (ECC) decided earlier this week to increase the petroleum levy to 50 rupees per liter. The committee also granted private oil marketers a premium of up to 15 barrels for high-speed diesel for the months of November and December.

While Ishaq Dar claims he knows how to negotiate with the fund as he has a 25 year track record (for context, I’m 26); we can clearly see that he failed to win her over with his historic relationship magic.

In addition, Dar was provided with a Federal Board of Revenue (FBR) summary requesting that he impose a 17% sales tax on high octane, bearing in mind that the sales tax on petroleum products was reduced to 0% in February 2022 and has come on the FBR’s path to achieving its annual goals.

The mere fact that Pakistan could not use the flooding as a reason to keep the levy low for long, or that the FBR takes the brunt of failing to meet targets in an already financially troubled country, shows that the IMF Dar has asked to get his house in order and that the Fund and the World Bank will not take a too accommodating stance.

Does it really jump through hoops?

Pakistan has received its fair share of aid in recent years, but at a time when more than 33 million people have been affected by the floods in Pakistan, one would no doubt expect a massive influx of funds. The already tight and reserve-starved economy was at a critical juncture during the floods and needed support, especially in the case of reserves.

However, this was not the case. For example, Pakistan had to meet all the conditions of the Resilient Institution for Sustainable Economy (RISE-II) program in order to receive a US$450 million loan from the World Bank. The Asian Infrastructure Investment Bank (AIIB) also approved co-financing of US$450 million, bringing the funding to US$900 million.

Previously, the World Bank had focused on improving fiscal management and promoting growth and competitiveness under the US$500 million RISE-I program for Pakistan. RISE assisted the government in improving the intergovernmental financial architecture so that the country could improve its fiscal position.

One step forward, two steps back

The sentence is usually two steps forward, one step back. This means, as we all know, you are still moving forward, slowly but surely forward. The case for Pakistan is of course different. Any semblance of progress is highly politicized and eventually restored to what it was in the pre-reform past.

A prime example of this is the SBP Act, which called for central bank autonomy. In a confidential conversation with various members of the fund who had been working on central bank autonomy in the region, a running gag was that while the Pakistani central bank remains autonomous on paper, it is not in practice.

The mere fact that the rupee is firming while import coverage is just over a month shows how dire the situation is. In addition, limiting LCs, limiting FX outflows, etc. shows how weak the rupee really is. Despite all this, it strengthens.

In the past, the central bank, on behalf of the Treasury, has asked banks to make losses in order to reverse the rupee’s currency depreciation. This shows how autonomy and independence are a joke in practice.

On top of that, various members of the fund dealing with Pakistan joked about how they dealt with more than six different people at the top of the Treasury, and the only reason the number isn’t eight is because Miftah Ismail and Dar are repeated finance ministers within a span of five years.

With such a perception, one has to question the value of political shenanigans and fiery speeches at public rallies. In fact, the gentleman who sat next to me during the debt restructuring discussion was actually right.

When my wild train of thought ended and I looked back at every repeated bad economic decision I’ve made over the past several years, I nodded my head and said, “Yeah, we’ve got it really bad. But deep down I believe that one day we will get out of this spiral. Better sooner than later.”

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