In a promising development it appears that Prime Minister Imran Khan and the IMF Director Christine Lagarde developed good rapport and mutual understanding when they met last Friday on the sidelines of the second Belt & Road Forum in Beijing. During the meeting, the two sides had agreed on the importance of an IMF programme for the country and reviewed the relationship between Pakistan and the Fund.
PM Khan's pitch reportedly focused on his government's mission of pursuing a socio-economic agenda through which the lower ranks of the population could rise up and be provided with equal opportunities to be part of the economy. The PM identified areas of reforms and initiatives being undertaken by his government to stabilise the economy, contain inflation and achieve fiscal balance. The two are reported to have agreed on the need for a social safety net for vulnerable groups of society and the IMF chief is reported to have stated that she was glad to have met the Pakistani premier in the meeting where a comprehensive policy package was discussed to alleviate the country's economy.
"We discussed prospects for a comprehensive policy package and international financial support to help stabilize the economy of Pakistan, and also the need to strengthen governance and protect the poor," she concluded.
Early this week, the working team of IMF commenced its meeting in Islamabad and is reported to have focused on the proposed tax amnesty scheme, privatisation programme, power and gas tariffs, circular debt and government's policies.
It appears that these are the left-over thorny issues and pretty major ones which still need to be straightened out.
IMF demand of Rupee value adjustment based on market dynamics by insulating it against political interference appears to be already well in place. The government of PTI extended far more autonomy on this account to the State Bank of Pakistan than any other government. Moreover, in the last one year, the rupee depreciated by more than 30 percent without any dictate from IMF.
The core issues are the privatisation programme and the utilities' tariffs as both have political repercussions and the government finds it difficult, more than ever before, to take the required steps particularly in an environment that is characterized by rising inflation and economic slowdown. Moreover, industry and businesses are already suffering on account of rising utility tariffs.
IMF demand of privatisation was also a major condition in its earlier programme signed off with PML-N government. PML-N attempted to vigorously embarked on its privatisation plan in the first three years of its tenure but in the fourth year it aborted the plan on account of vote politics and having in the meantime invested substantial public money by appointing financial advisers. The IMF at that time granted a waiver on this account.
The government of PTI adopted a different philosophy in relation to public sector enterprises (PSEs). Inspired by the Malaysia's model of success the government established 'The Surmaya Company' with an objective to restructure PSEs and turn them around as profitable business entities. This philosophy in Pakistan has been found to be flawed on two counts.
Firstly, the governance of public sector enterprises in Malaysia is managed entirely by professionals and their operations are governed by market dynamics of value to consumers based on competitiveness and service.
Secondly, considering the miserable state of affairs our PSEs have been subjected to with years of misgovernance, a turnaround will certainly require massive investments in infrastructure and skills, assets development, systems and processes. Also, in the present setup, it is most unlikely that PSEs in Pakistan can ever be insulated against political and bureaucratic influences.
These are not the times when one ventures to induct good money for a cause whose result is unpredictable and long term. In the present circumstances, the mission of the government should be to enhance revenue, reduce expenditures and increase money circulation to move the economy out of this very bad situation that is difficult to fix. The losses arising out of loss making PSEs and on account of circular debt alone are to the tune of over Rs 3 trillion.
The way forward is to immediately privatize all utilities in the public sector, get money and fill its coffers to serve a better cause in public interest. The government will carry a feather in its cap if it could deregulate the power sector where market dynamics dictate the tariffs based on competitiveness and service. It has been proved worldwide, without any exception, that wherever the utilities have been deregulated the tariffs ultimately came down with better service to consumers. Pakistan too on this account has a success story in telecommunications where deregulation ushered in an era of dramatic reductions in tariff with good services.
There are voices in social media and surprisingly also in our assemblies that there are some hidden and secret clause attached with the IMF agreement. The government has been asked to put before assemblies the entire agreement with the IMF for a wider debate with a view to ensuring its legitimacy and wider acceptance.
One who has even little knowledge of the working of the global lenders such as the IMF, ADB, WB, KFW and similar would understand that these entities work under strict rules of legal framework and compliance and transparency as per the mandate provided to them.
Like all lenders, the IMF would like to secure its loans and ensure that lending by it is not sunk.
It needs to be understood that the borrower is always at the receiving end and one would be profoundly naïve to assume that receiver would be able to impose its will on the lender. As things stand today Pakistan has no option but to accept the IMF loan with an open mind and, unlike previous governments, it must turn this loan into an opportunity by exploiting it in the greater interest of the country and its people.
(The writer is a former President Overseas Investors Chamber of Commerce