IMF’s programme note - Dr Ashfaque H Khan - Tuesday, April 19, 2011

The IMF issued a Programme Note on Pakistan on April 7. The timing and the contents of the note are highly damaging for the government and for its economic team. Through this note, the IMF has, in a way, vented its frustration at the way Pakistan’s economic management is being carried out. The release of the note coincides with the release of an equally damaging report from the White House on Pakistan’s economy.

The release of the IMF note also coincides with the arrival of Pakistan’s finance minister and his team in Washington to attend the Spring Meeting of the IMF-World Bank. There cannot be a better way to greet the Pakistani delegation in Washington. Besides attending the Spring Meeting, the Pakistani team will engage extensively with the high officials of both the institutions. The contents of the note will form the agenda for extensive discussion.

The IMF in its note has raised several issues. Firstly, it has expressed its concerns over the persistence of a large fiscal deficit owing to the delays in tax and expenditure reforms. Secondly, the IMF has observed that some structural reforms which were introduced in late 2008 and 2009 were in fact reversed in 2010 and 2011, instead of being carried forward.

Thirdly, it has noted that while the government did make some progress on tax reforms and expenditure rationalisation recently, the reforms were delayed and their scope was narrowed down. Fourthly, the IMF has pointed out that very little progress has been made in power-sector reform and commodity operations. These reforms were needed, on the one hand, to reduce pressure on public finances, which pose a serious threat to macroeconomic stability and to the strengthening of Pakistan’s banking sector, on the other.

Fifthly, the legislation needed to strengthen bank supervision and granting additional autonomy to the SBP has not yet been enacted. Sixthly, the reform of petroleum pricing has been partially reversed in recent months. The government, under pressure from its coalition partners and opposition, reversed its decision wholly and/or partially, to pass on the higher cost of fuel to domestic consumers in recent months. Finally, the reforms needed to strengthen the social safety net have not yet been completed. This deals with the strengthening and expanding the scope of the Benazir Income Support Programme and making its operation transparent.

The IMF also underscored the importance of reinvigorating economic reforms, strengthening Pakistan’s public finances through tax reforms and improving the quality of expenditure, improving the health of the banking and financial sector, restoring confidence in economic management to stimulate savings and investment, and promoting economic growth for creating jobs and poverty reduction. If Pakistan undertakes meaningful economic reforms and strengthens its public finances, not only will there be extension of external financial support from donors but also an increase in private-capital flows.

The message of both the White House report and the IMF note is very clear: that the government is weak and its economic team lacks capacity to undertake meaningful economic reforms, so vital for addressing Pakistan’s economic challenges. In my numerous columns in this newspaper, I have not only been raising these concerns but also giving suggestions based on my experience of handling such issues in the past. At times, I was too critical, which simply reflected my frustration over the economic management of the government. On many occasions, I have asked the finance minister to lead the ministry from the front and remove the perception of having a laidback, lethargic and non-serious attitude.

Pakistan is passing through the most critical and difficult phase of its economic history, which requires knowledge, dedication and hard work from the finance minister and his comrades. Unfortunately, they are neither devoting enough time nor making enough effort to address economic challenges. The non-serious attitude of the economic team has further compounded Pakistan’s economic difficulties, for which the people of Pakistan are paying a heavy price. The same attitude is responsible for reversing some of the reforms in 2010 and 2011, as pointed out tersely by the IMF.

It has been a regular practice of the government to take economic decisions and then reverse them wholly or partially under the pressure of coalition partners, opposition and the private sector. In so doing, the government has exposed itself as being a lame-duck government. The finance minister hates to interact with private sector in particular and the people of Pakistan in general. As such, the trust deficit has widened between the government and the private sector on the one hand and the government and the people of Pakistan on the other.

On many occasions, I have asked the finance minister to interact regularly with chambers of commerce and industry, leading businesses, industrialists and bankers. Such interaction on regular basis is essential for building the confidence of the private sector. I have also advised the minister to interact with the people of Pakistan through the print and electronic media. This is a very useful way of communicating with the people of Pakistan directly, and sharing with them the views of the government on different economic issues. I have also suggested that the minister should appoint a spokesperson of the ministry to communicate with the press and media within and outside the country. None of these painless suggestions have been taken up by the minister.

Before I close, it is not uncommon to find midgets trying to glorify themselves by downplaying the economic achievement of the period of 2000-2007. They believe that by criticising the economic performance of the period, they would enhance their stature. The opening statement of the Programme Note of the IMF, “until the economic crisis of 2008, Pakistan enjoyed a relatively robust economic performance since 2001,” is enough for these midgets to direct their energy towards giving suggestions for taking the country out of the current crisis.

The writer is principal and dean at NUST Business School, Islamabad. Email: ahkhan@

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