Even more than billions of dollars to avert imminent default Pakistan desperately needs expert advice to break the habit of living beyond means and independent supervision to prevent corrupt practices that drain off public resources into personal pockets of indiscriminate exploitative elite
. International Monetary Fund alone has the financial means, intellectual capability and international credibility to undertake multi-dimensional missions worldwide to rescue states from consequences of improvident economic polices. Impressed by its performance affluent states have decided to increase IMF’s resources with Japan taking the lead to contribute a hundred billion dollars so that it can play an even more effective role to rescue economies sucked into the vortex of the current global crisis.
The loan of $ 7.6 billion likely to be approved by the International Monetary Fund executive board later this week will not only enable Pakistan to service the international debt and provide fiscal space for orderly transition to self-reliance but hopefully also induct desperately needed fiscal discipline and remedial measures to stem the country’s descent into bankruptcy. Pakistan was brought to this humiliating plight by Government’s abysmal failure to take timely measures to rectify domestic and external imbalances between earnings and expenditures and stem the drain that was manifest in rapid decline of on foreign exchange reserves from $ 16 billion in October 2007 to less than $ 7 billion in October 2008. Also for a whole year the State Bank of Pakistan did nothing to prevent flight of capital and enforce laws prohibiting illegal transfer of foreign currency by private sector exchange dealers.
IMF’s supervision will also reassure foreign friends and benefactors who were reluctant to provide cash or credits to Pakistan because of its record of fiscal indiscipline, bad governance habitual, failure to balance income and expenditures, tolerance of corruption and transfer of illicit assets outside the county. The benefit of doubt friends gave to Pakistan in the past was no longer deserved after the so-called National Reconciliation Ordinance promulgated by General Pervez Musharraf in 2007 which gave amnesty to persons in high places who were charged with crimes of corruption and government even withdrew cases where foreign bank records testified to accumulation of illicit funds. When our state in effect set its seal of approval on malpractices it was natural for friends to withhold charity likely to be abused to feed bad habits. We therefore deserve to be closely watched and supervised so that the assistance extended to Pakistan in future will be utilized for legitimate purposes.
The agreement with IMF will regenerate confidence. IMF loans are invariably subject to conditions that a borrower has to accept. The funds it provides can only be used for specified purposes and the recipient must also implement programmes which not only address the causes of the problems a country faces but also ensure build up of capacity for repayment of the loan. In the past Pakistan acquired notoriety as a one-tranche country because after receiving the first installment it failed to implement its solemn pledges. As a result IMF terminate transfer of further funds. Only once, during Shaukat Aziz’s tenure, Pakistan abided by the conditionalties of IMF loans.
Still IMF is not taking good performance for granted. According to indications it will also appoint experts who will not only assist Pakistan in devising efficient policies but also continuously monitor utilization of the loans for agreed purposes. Mercifully the possibility of abuse or diversion of loan to illegitimate ends will be prevented. IMF is not like our public sector banks which were pressured to give loans to influential people who later used their influence to secure write-offs.
The main objectives of the IMF loan are stated as restoration of confidence of domestic and external investors by addressing macro-economic imbalances while protecting the poor from hardship and preserving social stability through a well targeted social safety net. The loan is expected to save the country from serious balance of payments difficulties and default on existing liabilities in foreign exchange.
Unlike World Bank and Asian Development Bank loans which usually have long maturities, the IMF loan will be repayable in five years. Although the interest rate of 3.5 to 4.5 percent is concessional, the loan of $ 7.6 will add about two billion dollars a year to Pakistan ’s debt servicing burden during 2011-2016. Since the servicing liability on the existing debt burden of an estimated $ 50 billion is already about $ 3 billion a year, the IMF loan will raise the annual liability to $ 5 billion a year.
It is high time Pakistan once again embarked on determined effort to stabilize its debt burden. In 1999 the government decided on a strategy to break the debt trap. Although constrained by multiple nuclear and democracy sanctions, it embarked on rigorous austerity so that the debt burden was not allowed to exceed the inherited figure of $38 billion. Unfortunately the example then set is not valued by the present government.
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