EDITORIAL: The International Monetary Fund (IMF) Resident Representative to Pakistan after witnessing the devastation caused by the floods, broadcast on television screens globally for over two months finally thought it appropriate to take notice of the floods.
Her statement, however, provides little comfort level as it pledges that the Fund “would work with others in the international community to support, under the current programme, the authorities’ relief and reconstruction efforts and their ongoing endeavour to assist those affected by the flood while ensuring sustainable policies and macroeconomic stability.”
Three extremely disturbing observations are in order; these reflect the complete lack of empathy of the Fund for the 33 million Pakistani flood victims as the seventh/eighth review, dated this month when the scale and extent of the devastation was known, did not mention the floods at all; and what is now being viewed as hypocritical, the review inexplicably argued that “scaling up of social spending targeted to the most vulnerable remains critical for inclusion, and while staff welcomed plans to continue with the targeted expansion of the Benazir Income Support Programme beneficiary base, it restated the importance of improving well targeted social safety net programme through a comprehensive, fully financed and coordinated upscaling.”
First, the upscaling that is to be fully financed is an absurd condition at this time of national crisis, given that the Fund requires fiscal and monetary policy tightening (ongoing) that would further reduce the projected Gross Domestic Product growth rate (in addition to the decline in output due to the floods) with implications on revenue collection, that, in turn, would trigger the contingency plan requiring the imposition of general sales tax on fuel and further withdrawal of exemptions with negative implications on inflation and employment.
Additionally, the Fund’s stated policy is that in the event of disorderly foreign exchange market conditions, which continue to be prevalent in this country, the central bank be allowed to take measures to deal with it.
In the seventh/eighth review the Fund tacitly acknowledges that the government withdrew all measures designed to deal with disorderly foreign exchange market conditions (including partially lifting the ban on import of luxuries except on cars, mobile phones and household appliances) and only allowed the country to maintain an exchange restriction resulting from the limitation on advance payments for imports against letters of credit and advance payments up to a certain amount per invoice (without L/Cs) for the import of eligible items till complementary macroeconomic policies (read tight fiscal and monetary policies) have not fully kicked in.
Second, the Fund has agreed to work with the international community and not with the government. It is unclear what is meant by working with the international community, given that aid pledges as well as planeloads of relief goods have been arriving for the flood victims.
The IMF Resident Representative further contended that “we are continuously working with federal and provincial authorities to identify how we can help financing the growing needs.” While there is as yet no corroborating evidence of the Fund’s supposed continuous working with federal and provincial authorities yet one would have assumed that the Fund’s response should be fairly obvious: under its rapid financing instrument an immediate disbursement is required.
Third, the emphasis on sustainable policies and macroeconomic stability at this point in time when one-third of the country is submerged under water is a stance that is simply inexplicable.
True, that Pakistani administrations, with no exceptions, have been particularly lax in undertaking fiscal and monetary reforms as well as the needed power sector and state-owned entities reforms yet by insisting on these reforms at present is indicative of the Fund’s apathy towards the plight of those affected by floods and needs an urgent revisit.
Economic pundits who have in some capacity or the other engaged with the Fund in the past insist that the Fund’s decision to completely ignore the floods in the September 2002 review report also reflects tacit, if not overt, acceptance by the Pakistani economic team leaders, notably the Finance Minister Miftah Ismail and the then acting Governor of the State Bank as they signed off on the Letter of Intent, a prerequisite of the tranche release earlier this month, which was silent on the floods.
The seventh/eighth review conditions that are at present being implemented need to be urgently revisited in light of the floods and one would urge the Pakistani team as well as the Fund mission to look into the matter in a manner that takes into account the human misery.
Copyright Business Recorder, 2022