IMF chief's visit

The Managing Director (MD) of the IMF visited Pakistan during October 24-25, 2016. This was the first visit of any IMF MD in a decade. Rodrigo De Rato Figaredo, the former MD of the IMF visited Pakistan in 2005. We welcomed the visit of the MD in Pakistan. The visit was long overdue as Pakistan has been a prolonged user of the IMF resources. In the last two IMF Programs, the IMF has been extra-ordinary generous and disbursed approximately $14 billion to Pakistan.
The visit of the MD was important on several accounts. Firstly, the government has been under tremendous pressure on both political and economic front. On political front, while the opposition parties continued to mount pressure, the self-inflicted wound also caused serious challenges for the government. On economic front, the "improvement" in the economy as propagated by the government through media campaign, both within and outside the country, was never bought in by the independent economists, journalists, analysts on television channels, or opposition and coalition partners in the Senate of Pakistan. Most importantly, the people of Pakistan also never believed in the 'success story' as they saw their lives deteriorating with each passing day. Hence, the government needed some pat on the back from the visiting IMF MD.
Secondly, the visit took place after the completion of a three-year IMF Programme whose outcomes have been highly disputed (the readers may read "An Open Letter to the IMF", published in this newspaper on October 24, 2016). Thirdly, the visit took place at a critical juncture of Pakistan's economic history when the country is witnessing an extraordinary rise in the societal tension owing to the rapidly shrinking job opportunities, particularly for the youth, due to a persistently lower economic growth. This development is the direct outcome of the type of macroeconomic policies that we pursued under the IMF Program.
What did IMF MD say during her two-day stay in Pakistan? Firstly, the MD congratulated Pakistan on successfully completing the IMF Program. Secondly, she selectively highlighted a few "achievements" and praised the Prime Minister and his economic team for achieving macroeconomic stability, reducing vulnerabilities, bolstering external buffers, reducing fiscal deficit and gradually increasing economic growth. Thirdly, and quite unexpectedly, the MD talked about corruption or the perception of corruption and pointed out that this menace can be eradicated through honesty, transparency and accountability.
On congratulating Pakistan's political leadership for successfully completing the programme, I must say that the MD was extra-ordinary generous in giving credit to Pakistan and its political leadership for completing the program. Who should be congratulated - the government (student) or the IMF (teacher)? Those who failed in 15 papers and yet graduated to the next class or those who promoted the student to the next class despite the student's failing in the 15 papers?
The readers should know that the IMF extended fifteen waivers in its three years' program. Also in seven reviews, quantitative performance criteria were suitably adjusted to facilitate their subsequent achievements. Perhaps never in the history of the IMF did a country receive such a large number of waivers. The previous government also went to the IMF in October/November 2008for getting support on the balance of payments. It was also a three years' program but was suspended in May 2010 because the then government failed to implement the Value Added tax or ReformedGST. In other words, the student failed in one paper or may be in few more papers and was thrown out from the school. On the other hand, the student under discussion failed in 15 papers and yet promoted to the next class. Who should then be congratulated - the leadership or the IMF?
On selective identification of achievements, myself along with Dr Hafiz Pasha and Dr Salman Shah have already discussed in greater detail in an open letter to the IMF. Therefore, I would not dwell on this issue any further. However, it is pertinent to note here that the IMF staff were shielded from interacting with other stakeholders of the program such as businesses, bankers, civil society, trade union leaders and most importantly the independent economists. All the Reviews of the program were conducted in Dubai, based on data provided by the Pakistani authorities. Most of these key statistics were dubious in nature at best. The discussion in Dubai between the IMF staff and the Pakistani authorities presented a semblance of a "fixed match". Such practice has severely damaged Pakistan's key economic statistics such as revenue, expenditure, budget deficit, real GDP growth, investment, unemployment and so on, for which, the IMF is to be blamed equally.
Interestingly, we were told that these reviews were conducted outside Pakistan because of the security reasons. When the Managing Director of the IMF, Vice President and the Managing Director of the World Bank, President of the Asian Development Bank and other high-ranking officials of the IMF can visit Pakistan, why can't the young economists from the IMF visit Pakistan to conduct the reviews of the program? I believe that it was a deliberate attempt on the part of the IMF to shield its staff from meeting the other stakeholders to get independent views.
On unexpected remarks of the MD on corruption or the perception of corruption, it was courageous on her part to dilate on the issue of corruption in the midst of the Panama Papers case. I believe that the MD had simply conveyed the message of the global community about the curse of corruption and the emergence of safe havens around the different parts of the world of money siphoned from the poor developing countries, which were discussed in recently held G-20 meeting.
The past few years have seen growing public recognition and discussion on the problems of corruption around the world in general and developing countries in particular. Corruption cuts into government revenues and leads to a wasteful spending; it reduces the effectiveness of public expenditure; and contributes to tax evasion and tax avoidance. It constrains the country's economic growth and contributes to macroeconomic imbalances, gives rise to poverty and unemployment, and adversely affects the country's social indicators.
Corruption raises transaction cost and increases uncertainty in an economy. It leads to inefficient economic outcomes, impedes long-term foreign and domestic investment, and misallocates talent to rent-seeking activities. It pushes firms outside the formal sector, undercuts the state's ability to raise revenue and leads to ever-higher tax rates being levied on fewer items and fewer taxpayers. This, in turn, reduces the state's ability to provide essential public goods including the rule of law.
I believe that while speaking about corruption or perception of corruption in her maiden visit to Pakistan the IMF MD must have been briefed about the current state of corruption in Pakistan. The ill-effects of corruption as listed above are fully observant in Pakistan, hence the MD wanted to send the message that the global community is keeping an eye on the state of corruption in Pakistan.
It is in this background that she pointed out that through honesty, transparency and accountability, Pakistan can eradicate the menace of corruption. Notwithstanding her remarks on corruption, her visit was primarily meant to provide moral support to a government battling for its survival. In the words of a foreign diplomat "this was nothing but a pat on the back visit".
(The writer is Principal & Dean at NUST School of Social Sciences & Humanities, Islamabad, Email: [email protected])