Holding out for an SLA

Editorial Board
Monday, Mar 27, 2023

Pakistan’s days of living dangerously are seemingly endless. With exactly a week to go before Pakistan enters the final quarter of its fiscal year, word is that there is still no word as to when Pakistan and the IMF may sign a staff-level agreement over a suspended bailout package. After weeks of claiming the SLA is just round the corner, Islamabad now remains tight-lipped. The Fund, on its part, continues to talk about unmet preconditions, including data on the financial implications of a new petroleum cross-subsidy the government is pondering. There should be no doubt the requisite data will flow in due time: the government cannot share the numbers it does not have. Dr Musadik Malik’s petroleum ministry has been given six weeks to crunch the numbers, and as such, nothing can be said with certainty about the proposed scheme until those numbers arrive. Media reporting on the programme seems to have been premature and somewhat exaggerated. It could be that Prime Minister Shehbaz Sharif’s political necessity to placate a people stretched thin by inflation was at play here. Nevertheless, any political mileage his government expected to gain from the announcement seems to have been more than offset by the negative vibes created by the Fund’s assertion that it must be consulted beforehand, especially when media reporting frames it in the light of a reporting failure. While such an impression may be misplaced, there is no arguing with the bigger reality these developments point at: the relationship is haunted by a stark and mutual trust deficit.

The Fund finds it hard to take the government’s assurances at face value for obvious reasons: Over the posterior part of the current Extended Fund Facility (EFF) alone, Pakistani authorities have gone back on their word at least three times. Former PM Imran Khan was guilty of breach of trust when he declared a freeze on petroleum prices. Incumbent Finance Minister Ishaq Dar has the distinction of doing it twice, once over the rupee free float and again over petroleum prices. Small wonder, then, that the IMF staff take the government’s assertions with a pinch of salt. On the flip side, however, these deviations from the agreed plan can only mean that Pakistani authorities somehow think the charted course does not serve the interests of the country, that they agreed to some measures in their desperation for access to financing. Or is it political interests they are honed on? After all, Imran was pandering to the ballot when he announced a freeze on petroleum prices on his way out. And Sharif is worried about his own vote bank as he tries to work around the Fund’s sensitivities to fork out a petroleum subsidy. The PM and his allies make a lot of noise about Imran not giving a hoot about the nation’s interest, but what happened to their assertions about putting country above politics? This is just one of those moments in our national life when we are left wondering where all the statesmen have gone. For, the crisis at hand calls for statesman-like courage, vision, and drive. Mired in a deep economic and political mess, Pakistan is holding out for a statesman. Nor was the crisis created this month, this year, or even this decade; or by the incumbent or the previous government alone. Successive governments over the last several decades contributed to the current crisis by introducing and perpetuating the deep distortions into the national economy that have since hollowed it out from the inside.

In any case, now that we are here, the way out of this quagmire is not to inject debt dollars into the consumption economy and promote easy money to create a bubble of good times. The way out is to resuscitate the real economy by eliminating those crippling distortions that bring us back to the IMF-back economic reform programme. It is no secret that the programme relies on lending from other sources in addition to IMF financing to balance the books. If the IMF requires Pakistan to secure firm commitments of financing from those sources, it is both understandable and in line with how the Fund generally works. The least FM Dar and his team can do is keep the markets posted on how things are going. After all, the government did not just pluck those numbers from thin air. They are likely based on tentative commitments from multilateral development financing institutions and bilateral lenders. With a new annual budget just round the corner, it is high time the government undertook a follow-up on all such commitments to seal the deal with the IMF, especially as billions of dollars in development finance and bilateral lending – including around $10 billion in flood rehabilitation financing commitments – are riding on the IMF SLA.