The international lending agencies are often under criticism that they dole out loans to developing countries while foregoing due diligence of the systems set-up for the transparency of purposeful utilisation of loans in public interest. Many developing countries under financial distress approach bilateral lenders for bailouts.
The economies of Europe and Japan collapsed in the aftermath of World War II. They both received IMF and World Bank funding. India, in 1991, went almost bankrupt and reached out to the IMF for a bailout.
They all availed the loan from lenders and diligently carried out reforms and restructuring of their systems and processes and honestly injected the loans into their economies to enhance their revenue and pay back the lenders. Having done that they never looked back at the IMF for further lending and their economies blossomed thereafter.
This has not happened in Pakistan in its chequered history of over 70 years - except for a few years of twilight. The loans largely supported fiscal deficits, incompetence, needs of the vested interests in the shape of subsidies for the elites, etc.
As a consequence, Pakistan’s economy remained vulnerable while the nation became a perpetual loan seeker from lenders such as the IMF, World Bank, ADB, friendly countries and from wherever it could lay its hand on. It has now almost reached its peak when, except IMF, all institutional and friendly lenders walked away sending the message to first set its own house in order.
The IMF has so far has advocated a standard prescription to overcome the financial deficit by enhancing utility tariffs, increase in fuel prices, withdrawal of subsidies from all segments of society and more of similar measures that hit the common man, trade and industry and sustained bad governance.
The IMF seldom reprimands the government on lack of transparency in utilisation of its loans in public interest. As a departure from its past practice, in the current IMF programme, the lender has opted to venture into transparency in utilisation of its bailout money and touched on issues never dared to be raised.
The Fund laid out the condition of “ Sharing of Declaration of Assets of Civil Servants “ whereupon the Federal Board of Revenue (FBR) this week hurriedly issued an S.R.O., notifying “Sharing of Declaration of Assets of Civil Servants Rules, 2023” for sharing of information between the FBR and the banks on the assets of civil servants in BS 17 -22.
The bank shall provide bi-annual feedback on the use of information received by the bank as well as on the outcome of CDD in terms of the success of new accounts opened and how the information helped the bank in building its client relationship. This may provide some transparency and money trails so often contested in court of law between contesting parties.
The IMF also dug deeper into transparency in the power sector of the country and grilled the power division to get down to the bottom of the issues. The IMF wanted to recover the full cost of electricity and if the government wanted to give subsidy it should be targeted, covering only the needy.
The government would have to impose additional taxes as the gap between revenue and expenditure is widening day by day largely due to incompetence, bad governance and lack of checks and balances in the system. The Fund intends to have a closer check on it.
The IMF also had a detailed look into the circular debt that has crippled the fiscal health of the country. It has rejected Pakistan’s circular debt management plan submitted by the government. It asked Pakistan to plug unbudgeted Rs675 billion power subsidies with a mix of electricity tariff increase and other revenue enhancing measures, while finding serious deficiencies in the revised Circular Debt Management Plan (CDMP) of Rs952 billion.
It also asked Pakistan to withdraw the unbudgeted electricity subsidies for exporters and other sectors, according to sources privy to the ongoing discussions. Circular debt is not a financial issue. It is a governance issue where the entire supply chain is riddled with bad governance. The IMF needs to have a closure look on the governance and transparency aspect of the circular debt.
The role of the regulators of the country is politicized and compromised. Accountability and a system of check and balances in state governance is non-existent. In the system of flawed state governance it will continue to be one IMF programme after another.
It is most unlikely that the country managers will ever put the house in order. The IMF, like any other lenders, has a legitimate role and stakes to ensure that there are systems and processes in place which guarantee optimal utilisation of its funds and pay back. It needs to do more in laying out conditions to close the gaps of fund leakages.
Copyright Business Recorder, 2023