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By the end of 1990 in the run-up to the Gulf War, the situation became so serious in India that the country's foreign exchange reserves could barely finance three weeks' worth of imports while the government came close to defaulting on its financial obligations. By July that year, the low reserves had led to a sharp devaluation of the rupee, which in turn exacerbated the twin-deficit problem. The Chandrashekhar government could not pass the budget in 1991. Moody's had downgraded India and the country further went down after annual budget was not passed. Global credit-rating agencies further downgraded India from investment grade, making it impossible for it to even get short-term loans and the government was in no position to extend any commitment to reform the economy. The World Bank and the IMF also stopped their assistance, leaving the government with no option except mortgaging the country's gold to avoid defaulting on payments.

The proceeds of a $2 billion IMF emergency loan weren't enough to plug the dollar shortage. Dr Manmohan Singh, the newly-appointed Congress government's technocratic finance minister took drastic steps to reboot the economy. All stakeholders, including opposition parties and bureaucracy rallied behind Dr Singh as one nation. He implemented, in letter and spirit, drastic reforms and carried out the restructuring of the crumbling socio-economic system in accordance with a World Bank condition requiring India to open itself up to participation from foreign entities in its industries, including state-owned enterprises.

India never looked back at the IMF since that time as its economy leaped with a growth rate of around 7 percent all these years placing India as a forefront economy of the world.

This all sounds familiar. And indeed it does as Pakistan is confronted with similar problems in 2019 nearly 26 years after the 1991 Indian economic crisis.

The success of India lay in its timely ownership of IMF recommendations and recognition of its weaknesses and the dire need to go for ruthless enforcement of reforms, over-riding political fallout and its consequences on vote bank.

The incumbent government in Pakistan must start by recognising that it has some real bad fiscal and governance issues which cannot be ignored. There is a dire need for ruthless reforms and restructuring as laid down by the IMF.

The challenge is to increase revenue and cut down on losses and expenditure. Bleeding of the economy through public sector loss-making enterprises for many years is not sustainable. The establishment of Surmaya Company to manage and turn them around by doling out billions with results unpredictable does not make any economic sense at this critical juncture. The government at present needs to fill in its coffers and not to empty them on experiments.

Nor is it sustainable to live with state-owned loss-making power generation and distribution companies whose incompetence is paid for by our industry and normal consumers in the shape of ever-increasing tariffs. Again these enterprises should be privatised and the electricity regime deregulated to provide consumers competitive tariffs and better service as we experienced in the case of our telecommunication sector.

The other money drain is the circular debt which has soared to over Rs 1.3 trillion. The ministry of power lately claimed that it has recovered 40 percent of the receivables from the defaulters and the circular debt will be wiped out by 2020-21. This is unlikely to happen as receivables are only a small part of the whole power sector supply chain starting from fuel (oil, coal and LNG) procurement, etc.

Payment default and theft by consumers is only the tail end of the chain riddled with incompetence and misgovernance. In the absence of a full audit of the supply chain and its correction at all points, circular debt will not disappear.

The major issue is revenue generation and revival of the transactions in the market which are on hold, choking the money circulation.

Suspension of transactions is largely driven by fear of accountability and harassment by the tax authorities. Under the new FBR chief Syed Shabbar Zaidi, some level of comfort has been provided to businessmen.

Revenue is largely driven by industry, exports and FDI. All of these prime movers of revenues are stagnant - largely on account of political uncertainty and increasing high cost of doing business which is going to take another hit from increase in utility tariffs and banks' lending rates.

The issues are complex demanding major reforms and political stability. The questions are: Does the incumbent government feel strongly committed to meeting these challenges by coming up with some realistic policies? Is the bureaucracy, which is responsible for the implementation of policies on ground, committed and competent to make things happen? Does the political leadership in the opposition also feel responsible towards the need to salvage the state economy? The test of their responsible behaviour will be witnessed in the presentation of budgets in assemblies in June.

The answer to all the three questions is that there are significant gaps which need to be bridged to effectively address situation.

The leadership of PTI has made some changes in its economic team comprising a new Finance Advisor, Governor State Bank and Chairman FBR. But, this is not enough. The role of the above three is limited to managing figures and beyond that they can do little to spur economy.

Important is to generate the figures from industry, trade, exports and investments. This is the difficult part and that too demands management change in all these sectors.

The successful conclusion of the IMF programme after three years of committed reforms and its positive results on ground will make the nation forgot all the past mistakes of the incumbent government and the hardships faced by them in all these years. The PTI government must not lose sight of the fact that failure is no option. (The writer is the former President of Overseas Investors Chamber of Commerce and Industry)

Copyright Business Recorder, 2019

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