Even before he became finance minister of Pakistan last September, Ishaq Dar was cocksure of balancing the onerous demands of the IMF Enhanced Funding Facility (EFF) programme with what he thought was required for Pakistan’s economy – low interest rates, a relatively fixed exchange rate, fiscal expansion and subsidies to moderate energy prices and kickstart economic activity.
He always boasted of how he had 25 years of experience in dealing with the IMF and derided his predecessor Miftah Ismail, a PhD in Economics, for not negotiating better terms for Pakistan. Dar believed he could bully and bluff his way and get the IMF to cut slack for Pakistan.
A Downgraded Pakistan
After all, between 2013-16 Dar had managed to get more than a dozen waivers on crucial structural benchmarks which allowed Pakistan to successfully complete its first IMF programme – since the 1950s, Pakistan has approached the IMF more than 20 times. But Dar was clearly living in the past. The world had changed, and Pakistan's geo-strategic importance had been significantly downgraded depriving it of leverage to extract geo-political rents.
Dar, however, thought he could still browbeat and beguile the IMF in bending to his demands. Last December, he pompously declared that he didn’t care if the IMF didn’t come to help because Pakistan wouldn’t take dictation and would manage without it. Last week, in his latest outburst Dar accused IMF of pushing Pakistan towards default and blaming geo-politics for IMF taking a hard line.
That Pakistan had failed to deliver on its commitments to IMF was conveniently ignored. Dar has been consistently abrasive and combative towards the IMF, resisting, even defying its demands in the hope that IMF will ultimately give in to his temper tantrums. But the IMF has uncharacteristically stuck to its guns and is insisting that Pakistan deliver on its commitments before the IMF restores the EFF programme.
Bad Cop And Good Cop
Each time Dar’s bad cop routine falls flat, the Pakistan government – both Prime Minister Shahbaz Sharif and the Finance ministry play the good cop. After Dar’s latest dare, the finance ministry issued a conciliatory statement assuring the IMF that it was “not ‘doctrinaire’ about any element of the budget FY24”.
In other words, the finance ministry was rejecting its own minister’s stand and indicating that it would be open to an “amicable solution” to resolve the impasse. The grapevine is that the Pakistan Army has taken a dim view of Dar daring the IMF and has come to the conclusion that Pakistan must do everything possible to get IMFs backing.
Time is, however, running out. The IMF programme ends on June 30. The Budget presented on June 9 was quite literally Dar thumbing his nose at the IMF.
Budget Gamble Fails
Nor surprisingly, the IMF called it a “missed opportunity”, raising objections over a money laundering amnesty scheme for bringing in foreign exchange, the inadequate revenue measures taken, and the massively expansionary budget – it is 50 percent bigger than the previous budget – which clearly was fiscally irresponsible. Not only was the budget bereft of any new idea, it has zero reform impulse.
Worse, Dar has done his usual figure fudging and presented some rather incredulous numbers, including for the external resources available to the government in the next fiscal. For instance, he has included $2.4 billion that Pakistan will receive from the IMF even though the programme is stalled and has little hope of revival.
Dar’s desperate gamble of confronting IMF with a fait accompli through the budget appears to have failed. That the budget, as it stands, is unconvincing, unworkable and unviable is quite apparent to anyone who has even a rudimentary knowledge of economics.
No Plan B Other Than IMF
With the IMF not relenting, Dar’s attempt to get away with an election year budget that could help the ruling Pakistan Muslim League Nawaz (PMLN) recover some lost political ground has come a cropper. Dar is now playing the nationalist card – upholding Pakistan’s sovereignty, refusing to bow to IMF diktats. In the process he has sacrificed Pakistan’s economic stability at the altar of political survival and interest.
His bravado that Pakistan can survive without the IMF is not convincing anyone, even less so because there is no clear Plan B on how the economy will remain afloat if the IMF programme doesn’t come through.
The size of Pakistan’s external resource problem is so big – around $33 billion in FY24 – that even Pakistan's traditional benefactors – Saudi Arabia, China and UAE – are not ready to plug the hole without an IMF programme. Clearly, Pakistan is closer to the abyss than ever before.
Army-Backed Technocrats Coming?
The incumbent regime will demit office in the second week of August and will be replaced by a caretaker government whose main mandate will be to hold elections latest by mid-November. But if there is no IMF programme, Pakistan is in serious risk of running out of money by the time elections are held.
There is a lot of uncertainty over whether the caretakers will be able to negotiate a new programme with IMF. Not only will the new programme entail extremely stiff conditions, it will also bind the incoming government for the next three years which it might not want to go through.
The problem is that Pakistan doesn’t have the financial space to wait until a new elected government is in office and enters into negotiations with the IMF for the 23rd programme. Not surprisingly, there is growing speculation that the caretakers will be technocrats who will probably declare a financial emergency and stay in office beyond their mandated three-month tenure. Elections will be postponed until the economy stabilises – that could be a couple of years.
Sushant Sareen is Senior Fellow, Observer Research Foundation. Views are personal, and do not represent the stand of this publication
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