Bravo! Congratulations to the PML-N for pulling off an excellent exercise in self-congratulations. After the award by Emerging Markets magazine turned controversial, IMF's MD, Christine Lagarde's address in Islamabad yesterday should help PML-N shine its shop.
At the time of writing this, the headlines had already roared: "Pakistan's economy out of danger"; "IMF chief lauds better fiscal position"; and so on and so forth. Mission accomplished!
The IMF boss rightly highlighted that Pakistan will have to look inward for growth because at best one can only have a sense of "guarded optimism" about global economy. In her own words, "global growth is too low, far too long and benefiting only a few."
She cautioned about the two important emerging market transitions that add further emphasis on the need to "restructure" or "retool" Pakistan's economy. The first of these is China's economic transition that is likely to lower Pakistani exports to China, though admittedly with higher chances of Chinese investment flows to Pakistan, provided the latter is able to improve its quality of labour and lower the overall cost of production.
The second transition is the slowdown in global oil and other commodities that has a positive impact on imports and inflation, but on the other hand, puts pressure on inwards worker remittances that has been easing in recent months.
Aside from these cautionary statements, Lagarde was in praises. She highlighted lower fiscal deficit, increased power availability, higher tax collection, etcetera - exactly the kind of sound bites PML-N wanted her to make.
However, perhaps in order to appear neutral in her speech, she also offered some soft criticism. She spoke of Pakistan's high ranking in perception of corruption indices, and the need to increase government spending on education by one and a half percentage points to at least 4 percent of GDP.
These issues are indeed worthwhile to point out. But not at the cost of silence over other more immediate and bigger issues.
For instance, while Lagarde stressed on the need to increase exports, she remained silent about the overvaluation of Pakistan's exchange rate which is one of the main reasons why the country's exports are going downhill. This is an area that has been discussed by IMF's own review reports, and publicly emphasising on the gravity of the issue might have gone a long way in putting the currency on the right track.
Similarly, commenting on power reforms, both Ishaq Dar and Lagarde were selective; they only highlighted increased availability of power, which doesn't say much about power sector reforms. As the matter stands, the government is still far from achieving its 2017 target of lower cost of generation and reduction in transmission and distribution losses - both of which are key components of National Power Policy. Whereas there has been zero progress in so far as the alignment of all related ministries is concerned to improve the governance of all related federal and provincial departments as well as regulators - also a key component of power policy.
Lastly, while Lagarde complimented the government for higher tax collection, she didn't dwell over the government's short-cut methods to increase revenue collection - i.e. WHT-isation of economy. Nor did she lay enough emphasis on the need to simplify the country's taxation system, except for a by-the-way passing comment.
Many years ago, Joseph Stiglitz criticised multilateral economists for being unacquainted and too distant from the ground realities of the economies whose "mission" they are on. Whether Lagarde's silence on the key issues speaks of that mindset or whether she wanted to be polite to her hosts, is something that gossips are made up of. But while answering a question on whether Pakistan would have to go back to the IMF in two years time, she did say something rather important: Pakistan's "civil society should push for reforms". Indeed, that is one of the critical gaps in Pakistan's political economy space.
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