Will bitter IMF pill cure?

The visiting IMF team - led by Jihad Azour met an exclusive set of journalists yesterday in Karachi in its last leg of the trip. The finding of the trip points to an encouraging start of the programme based on how market is reacting; how inflation has moved; and the way SBP has dealt with it. The team needs time to assess things as it is not yet a quarter out of the 13-quarter programme. The IMF team did not show comfort or displeasure on any of the quantitative targets, and said that the technical team will look at the numbers and assess the situation by the end of October or start of November.
This visit is to take stock of the situation - "It is to meet with the authorities and the stakeholders to get first-hand information," said Mr. Azour. He said that he met the PM for the third time and is encouraged by his great sense of ownership.
The Fund emphasised that the programme is trying to bring about a paradigm shift by injecting competitiveness into the economy to export more and to attain output potential. It is to reduce the level of uncertainty on investment climate with a target to preserve investment capital and social capital at the same time. Stabilisation is a transitory process, while IMF's main objective is for Pakistan to be competitive.
Isn't this music to the ears? And we have been listening to this music for decades now. Every now and then we are in an IMF programme. The Fund team addressed the concerns raised by journalists by saying that they are looking for some structural changes where the onus of implementation is on Pakistan. To bring about important structural changes, a legislation is required, which involves approval of both upper and lower houses. This requires political consensus - something that is not in sight.
To a question regarding what more is required for central bank's autonomy, the Fund team responded with a few points and one was to increase the tenure of the governor from 3 years to say 5 years. However, in a country where successive 5 governors did not complete their three-year terms, what is more important is to progress to a culture where governors cannot be sacked. The other point on the autonomy of central bank was on running its own budget - that is to have operational autonomy. And the most important element of this is to have the capacity to say 'no' to extending credit to the government.
A strong central bank with inflation targeting monetary policy and market-based exchange rate is what IMF is eyeing. An improvement in debt management and having single treasury account has been stressed upon by the team. The other important structural reform spelled out was strengthening NEPRA; and one of the quantitative targets of first quarter is to let NEPRA decide on electricity tariffs.
The fund team strongly emphasised on social protection. The ultimate objective of the programme is to have higher growth that allows private sector to grow and create jobs, and to have financial inclusion. This can be done by providing incentive of reforming the regulatory compliance structure to improve the scope of ease of doing business. Some of the pillars are controlled by the IMF while rest are supported by ADB and the WB where these institutions peg their policy lending to structural reforms.
When the team was asked about any concerns, they responded by saying that it's important for all pillars to move in the same direction including price stability, financial stability, social protection, and job creation. There are buffers required to be filled for external side and fiscal house in case of oil prices going up. The idea is to have more resilience - even after the IMF programme.
Here journalists expressed concerns on the country's historic behavior of deviating from the Fund policies right after exiting - such as not tightening monetary policy in 2017 or not passing on oil price impact to consumers in 2008. Essentially, they wanted to know how the programme can bring about any real change this time around. To this, the Fund replied that people are skeptical and will remain skeptical till the end; the need is to change the mindset by preempting economic problems such as government cannot borrow from the central bank. The team gave examples of countries where population is small and literacy is high. But can an average Pakistani have the resolve to bear today's economic pains for a better tomorrow?