"However, macroeconomic stability gains made under the 2013-16 EFF-supported programme have begun to erode and could pose risks to the economic outlook. Fiscal consolidation has slowed, with the 2016/17 budget deficit target of 4.2percent of GDP (authorities' latest projection) likely to be exceeded. The current account deficit has widened and is expected at 3 percent of GDP in 2016/17, driven by quickly rising imports of capital goods and energy. Foreign exchange reserves have declined in the context of a stable rupee/dollar exchange rate. On the structural front, while the successful implementation of business climate and financial inclusion reforms has continued, some renewed accumulation of arrears in the power sector has been observed, and financial losses of ailing public sector enterprises continue to weigh on scarce fiscal resources. Key external risks include lower trading partner growth, tighter international financial conditions, a faster rise in international oil prices, and over the medium term, failure to generate sufficient exports to meet rising external obligations from large-scale foreign-financed investments", extract from IMF Executive Board Conclusions subsequent to Article IV Consultation with Pakistan. For those who are not aware, "Article IV" is nothing ominous or salutary, but an article of IMF's Articles of Agreements under which annual review are conducted, generally, on a lighter note, of the colonies.
Seriously??!! "Have begun to erode", already??? But the twelfth and final review under the Extended Fund Facility (EFF) concluded in September 2016, gave the country, in substance and in form, a thumbs up. Here are the accolades, the evidence; the extracts from the Executive Summary of the report:
"Status of the programme: The authorities met most Performance Criteria (PCs) at end-June 2016 but the PCs on the budget deficit and Net Domestic Assets (NDA) of the State Bank of Pakistan (SBP) were missed by small margins. They also met all programme Indicative Targets (ITs). Structural Benchmarks (SBs) on financial sector reform, (enactment of the Deposit Protection Fund Act), privatisation (solicitation of expressions of interests for the disinvestment of a major power generation company) and energy sector reform (update of the power sector arrears reduction plan) were met. However, one SB on energy sector reform (notification of multi-year tariffs for FESCO, IESCO and LESCO) was not met due to an unresolved dispute with the regulator",
Only last September, IMF said that we met most Performance Criteria (PCs) and those we missed were by small margins only. We met all program Indicative Targets (PITs). As regards Structural Benchmarks (SB), we missed only one, which can be called immaterial considering its substance and impact on the overall program. So, why in less than a year, has our Current Account Deficit widened to 3% of GDP? According to IMF's country report on Pakistan after the Twelfth review, from which the earlier extract was taken, after partial recovery in oil prices, higher CPEC related imports and an expected slowdown in remittance growth, current account deficit was likely to widen to 1.5%. All that did come to pass, so what happened? Three is two times 1.5, way beyond a tolerable margin of error; not very good at estimating, are we IMF?
Being a bit dicey on estimations brings to mind another matter; our Finance Team believes that our GDP is understated by at least 25%, which is perhaps likely given the guesstimates about size of the informal economy. But if that is correct, it renders most analysis, contained in the above referred report, in fact in all eleven earlier review reports, completely fictional.
Nonetheless, after four years of strictly following all programme conditions, some of which directly challenging our sovereignty and our independence and simultaneously impacting the disposable income of the lower classes by removing subsidies on necessities, and after scoring more than 90%, based IMF's own strict markings, it is befuddling, why in less than one year, is there talk about knocking at IMF's doors again right after elections? What kind of a programme was it, where gains made after four years of hard work and suffering get eroded in less than six months and suddenly pose risk to economic outlook?
Only now, does Article IV report tells us, albeit still very confusingly, that increasing exports is the one and only mitigating strategy for countering external risks; and frankly in my personal opinion the economy as a whole; every time you have a trade deficit, you have exported jobs. But where in all earlier programme conditionalities, the PCs, the PITs and the SBs associated with the EFF, was there a condition requiring the government to invest in manufacturing, focus on industrialization, manage the trade deficit and perhaps monitor imports. Seriously, if we had done all that, perhaps we would not have needed to build up our foreign exchange reserves through expensive external debt, just to pay back our foreign loans, including the one from the IMF.
And while we are on the subject, is it wise for a country like us with an out of control current account deficit, to pay billions of dollars in precious foreign currency for international travel to foreign airlines, while at the same time sell the national airline? Would it not be a sensible strategy for our government to provide the national airline, as is the norm with the leading foreign airlines of the world, all of which are extensively protected by their respective national governments?
Dear Nation, after four years of doing what the IMF dictated, we are worse off; and I use only two indicators to come to this conclusion, trade deficit and national external debt. In my opinion, an opinion that I have been trying to decimate for years, only these two indicators are the determinants of the health of any nation's economy; the rest, the likes of GDP and such others, which in essence are ab initio guesstimates, are utter and complete nonsense. Whether or not, and when for that matter, are we back with the IMF, is irrelevant; the key issue is that their solutions for us, are one directional, a fire sale of national assets. I for one don't think we can survive another four years of their PCs, PITs, and SBs. So we have a choice, either we can both start relying on ourselves and work hard to improve our economy, or we can sell to the highest bidder, albeit perhaps not even that considering CPEC, our future.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])
Copyright Business Recorder, 2017