No End in Sight for Worsening Economic Crisis

It appears that the economic crisis gripping Pakistan is not going to end. In wake of the current political and economic instability it is surprising that somehow life goes on in the country as normally as is possible defying all norms of logic and rationality.

It is getting clearer by the day that the economic mess that Pakistan is in is simply enormous and the problems confronting the economic state of affairs are indeed infinite.

The labyrinthine difficulties social, political and economic experienced by the country are now coming to fore owing to the relatively better access gained by the media and, to the chagrin of the ruling class, it severely criticizes their conduct and management capability.

It is widely commented that it will take Pakistan plenty of effort and time to weather this crisis and that the people of Pakistan will undergo extreme hardships in the process.

The financial crunch has gone to almost dangerous levels as was borne out by the reports that mentioned IMF strongly asserting that decisions regarding the constitutionality, feasibility and timing of provincial and general elections rest solely with Pakistan’s institutions. The Fund further clarified that there was no requirement under Pakistan’s Extended Fund Facility-supported programme which could interfere with the country’s ability to undertake constitutional activities.

Interestingly, the statement from the international monetary lender comes a day after the Election Commission of Pakistan (ECP) announced that it has decided to put off Punjab Assembly elections by more than five months citing financial and security constraints. In all probability the statement of the IMF was triggered by its explicit reference mentioned by the ECP while postponing elections.

The ECP’s statement in this respect categorically mentioned that due to the paucity of funds and financial crunch the country is facing an unprecedented economic crisis and it was under compulsion by IMF programme which has set targets for maintenance of fiscal discipline and deficit and it would be difficult for the government to release funds for holding elections now for elections in Khyber Pakhtunkhwa and Punjab and later down the line for Sindh, Balochistan and the National Assembly polls.

ECP added that it would not be possible for the Punjab government to fund the elections citing various financial commitments as well as the IMF programme’s requirement that Punjab maintain a cash surplus of Rs.413 billion.

In a rejoinder however the IMF pointed out that targets under IMF-supported programmes are set at the aggregate general government level i.e. aggregating across federal and provincial government and within these there is fiscal space to allocate or reprioritise spending and/or raise additional revenues to ensure constitutional activities can take place as required.

In the wake of above, the impression is gaining ground that the current political situation is primarily responsible for the delay caused in finalising agreement with the IMF that would unlock financial assistance from the friendly countries. Accordingly reports are emerging that global lenders including the IMF are seeking assurances from Pakistan that the future political setup in the country will respect any deal signed with the country.

These reports may reflect the true reasons of the issue as Pakistan has already implemented a series of policy measures that the IMF suggested, including increased taxes, higher energy prices and increasing interest rates to the highest in 25 years.

The stumbling blocks therefore pertain to financial and political assurances that are missing at the moment and by the look of things it appears cumbersome for Pakistan to decisively show its ability to raise enough financial resources to narrow its balance of payments gap.

It is quite clear that Pakistan’s standing in international financing world has considerably dwindled and it finds it extremely difficult to garner financial resources and that is the reason that the IMF which only provides a part of the loan a borrower needs, requires the borrower to show that it has pledges from other lenders to bridge the gap.

In this context it is reported that Saudi Arabia, China and probably the UAE and Qatar are expected to provide financial assistance but the IMF considers that such help falls short to fill in the financial gap that it estimates to be $7 billion and is not prepared to accept figure of $5 billion given by Pakistani authorities.

The lack of trust in financial figures given by Pakistan has now become a serious issue as most international lenders believe that Pakistani officialdom consistently fudges figures and years of dealing with Pakistan has convinced them that such figures cannot be relied upon. Though the IMF actually actively monitored the activities of the State Bank of Pakistan through one of their operators serving as its governor yet it cannot individually keep an eye on other government agencies spending government money.

Another crucial point of contention is related to high levels of doubts about the intentions of respective Pakistani dispensations that have always displayed a casual attitude towards IMF programmers as it acts wantonly by quitting such programmes half-way and also not abiding by the terms agreed with the Fund. The situation has come to a pass where the IMF now requires assurances that the government signing the deal can implement it and that the following governments do not deviate from it.

This issue has become problematic as the expected elections in KP and Punjab and the possibility of the national elections soon after have persuaded the IMF to think that the present government may or may not be there to implement the deal it signs. It is to offset such concerns that reportedly IMF has sought assurances from the opposition elements to the effect that they will also respect the deal if they manage to win the elections and replace the incumbent coalition government.

It is also reported that though any government in the future would, in all likelihood, may fulfill the agreement made by the incumbent government but the current political polarisation entails that it would be difficult to expect that the opposition parties, particularly PTI, would offer any support to the coalition government with a view that they would not like to make matters easy for it to resolve.

As a corollary to this issue is the fact reported that neither the international lenders including the IMF nor the coalition government can seek opposition assurances through public means and that the ongoing polarisation implies that any covert approach may not remain secret as the opposition would certainly like to play this card as a measure of its credibility in the eyes of the electorate. This is a tricky situation and could be observed by the fact that the incumbent finance minister indirectly blamed the opposition for the delay caused in closing deal with the IMF.

It is therefore quite clear that the IMF country representatives feel it imprudent to forward the agreement draft to the IMF board for approval without obtaining the required assurances. It looks uncertain that in the absence of such assurances the IMF may not close the deal and the matters may remain pending for indefinite period of time. Consequently, it is reported that both sides are close to finalise the deal but it is difficult to predict the time frame of such a development.

Unfortunately, Pakistan suffers both from the scarcity of financial resources and the paucity of time it has on its hands.