BY this time, few people in the country are under the illusion that Pakistan is not sleepwalking its way back to the IMF. Policy inaction spread over several years has been compounded by accommodative policy settings, a drying up of external inflows and a ‘bunching up’ of debt repayment liabilities.
Any lingering illusions on the subject have been officially dissipated by the State Bank governor’s recent interview to the Wall Street Journal. This interview showcases what most central bankers know, and practise, around the world: the top central banker is usually ‘invisible’ to the public and media, and offers very rare, and calibrated, public comments. Most of the central bank’s comment is better channelled through carefully crafted statements (press releases, or the monetary policy statement), or through its regular reports submitted to parliament.
In some instances, the governor of a central bank uses a trusted aide with greater ‘visibility’ in the public eye to articulate policy direction or concerns. (The classic example was the Bank of Japan’s deputy governor in the 1990s, whose regular comments on the currency aimed at the markets earned him the sobriquet ‘Mr Yen’).
On Pakistan’s potential return to the fold of yet another Fund programme when and not if to be decided, a number of excellent articles have appeared in various newspapers, and insightful views proffered at different fora (Dr Meekal Ahmed’s recent invited lecture at the Pakistan Institute of Development Economics, and ex-governor SBP Shahid Kardar’s comments being among them). However, I believe there is still something to say on the subject. A number of important lessons can be gleaned, both for Pakistan as well as for IMF staff and management, from Pakistan’s ‘prolonged use’ of IMF resources, and its more recent engagement under the 2008 Stand By Arrangement (SBA).
Pakistan has had an almost continuous programme-lending engagement with the Fund since the early 1970s, with a brief interregnum in the 1980s. Since 1988, Pakistan has had 11 programmes with the IMF, spending 14 years out of the last 20 in the Fund’s intensive care unit. ‘Successful’ programme completion has amounted to 36 per cent (a straight ‘F’), with only four programmes qualifying to be dubbed as ‘successful’ (and that too purely in terms of money drawn and not on the basis of what really matters — outcomes).
A number of reasons are thought to have been responsible for Pakistan’s prolonged use of IMF resources and its dismal performance in Fund-supported programmes. These are listed in the IMF Independent Evaluation Office’s 2002 report titled Evaluation of Prolonged Use of IMF Resources, in which Pakistan is considered as a special case study. Briefly, these can be listed as programme design flaws including over-ambition in programme objectives and sequencing errors, and a lack of programme ownership beyond a small coterie of bureaucrats and technocrats (a point I made earlier in Our Greek Paradise, March 9, about the lack of a genuine reform constituency, and a view articulated by others as well).
Pakistan was the only country where geopolitical considerations were found to have played an important role, both in granting access and in adopting a lenient approach in the subsequent review and monitoring process.
The last point was amply evident in our approach to the Fund in 2008. Even though we had a fairly solid, ‘home-grown’ programme that was calibrated to achieve on the most basic structural flaws hobbling Pakistan’s economy without overreach (or so it was thought at the time), the US made several interventions on our behalf for the grant of greater access and for a number of key waivers.
The programme was ‘soft’ by any standard, aiming for a fiscal adjustment that was a fraction of what Greece, Iceland or Ireland were expected to achieve (admittedly, their adjustment requirements were larger, bloated by systemic banking sector issues). However, even at the time, well before the full-blown crisis that has gripped Europe, there were demands from the European executive directors about ‘Pakistan treatment’ being extended to their members, a reference to the generous access for Pakistan without corresponding stringent conditionality.
In the end, even a fairly ‘soft’ programme failed — leaving Pakistan straddled with a huge repayment obligation. While the subject is of a much wider and detailed inquiry, for reasons of space suffice it to say that a number of mistakes were made by both the Fund and policymakers. The biggest was that in allowing a back-loading of the reforms, the Fund made a calculated (and grave) error about the longevity of the reform team.
It was apparent from the beginning that while Shaukat Tarin was the ultimate insider-outsider and hence, an excellent potential ‘reform champion’, he would not last in a government controlled by entrenched vested interests. (The vested interests are not just in the domain of politicians — the bureaucracy has a permanent vested interest in the status quo and our biggest resistance to reform has come from civil servants.)
Looking ahead, this time around, my own feeling is that any IMF programme will be the exact opposite of the 2008 arrangement — the adjustment will be front-loaded (via prior action), while the disbursements will be back-loaded. There are split views on this, with some commentators already seeing a softening of the US attitude towards helping Pakistan getting multilateral assistance.
While since 2008, the US ‘game plan’ for stabilising Pakistan’s economy appears to have relied on securing multilateral funding rather than making bilateral commitments (other than the highly intrusive and ‘suspect’ instrument of the Kerry-Lugar-Berman bill — where non-economic commitments from Pakistan were extracted but the money hasn’t showed up), the mood in the US is palpably different today than it was even three years ago.
In addition, with Pakistan’s credibility in tatters once again with regard to any serious commitment to deeper and more meaningful economic reform, I suspect our treatment by the Fund may not be too different from 2000, when the IMF hauled Pakistan over the coals with stringent prior action before taking a SDR 465 million SBA to the executive board.
That is a hope well worth harbouring.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.