As expected, though perhaps delayed longer than the Pakistan government would have liked, the IMF’s Board of Directors voted to release the last of three tranches of its Stand-By Agreement with Pakistan, worth $1.1 billlion. The BoD’s approval was perhaps merely a formality after the mission in March reached a staff-level agreement, and it also marks the successful completion of an IMF programme by Pakistan, which is relatively rare. However, it is not so much the symbolism of a completion that counts as much as the fact that the IMF views Pakistan’s economic managers as being on the right track. As the Pakistan government has said repeatedly, and as the IMF has acknowledged, Pakistan wants another IMF package, an Extended Structural Adjustment Facility. The Pakistan economy has therefore already had a number of steps carried out which the IMF would have insisted. In fact, some of its anticipated measures have also already been carried out. However, there is still much more to be done, especially in the area of broadening the tax base. The IMF need not be right by definition, but its prescriptions are not necessarily wrong. Its prescriptions must be adopted when they are right, with rightness not being defined as popular.
Interestingly, both IMF MD Kristalina Georgieve and Pakistani PM Shehbaz Sharif were together in Riyadh attending the World Economic Summit in Riyadh, and met on the sidelines after the approval. Mr Sharif had already announced his commitment to carrying out further reforms. The IMF’s official announcement also expressed the hope that Pakistan would stay the course, and pay attention to those stricken by poverty. This seemed more a hope for the future programme rather than a wrap-up of the SBA. Mr Sharif, while addressing the WEF plenary, said that there were leakages galore in revenue collection, and mentioned the recent suspension, and transfers of CBR officials, as an example of what his government was doing to carry out reforms.
However, while both release of the last SBA, and the positive Shahbaz-Georgieva meeting bode well for the future, the new IMF programme will be useless unless it is used for the purpose for which it is intended– economic reform. Mr Sharif identified the debt trap and inflation as the main challenges facing the economy. He must realise that the first especially cannot be solved unless the country finds a reliable way of earning more foreign exchange. Otherwise, the next IMF programme will merely worsen the problem than help it.
