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Stalling on economic recovery

November 25, 2018


IF the intention behind Finance Minister Asad Umar’s speech in parliament was to reassure the people that the country’s economic predicament was being handled with a firm hand, then his words failed to ease concerns. In response to questions about the inconclusive talks with the IMF, Mr Umar said that his government was “not in a hurry” to enter into any programme with the Fund, and would resist all “pressure to burden the country and its people”. He pointed to the assistance from Saudi Arabia, as well as other “friendly countries”, that has apparently given the government some breathing space, and to the jump in remittances in the first quarter. It was emphasised more than once that the government would only sign an agreement with the IMF “if it serves the interests of the country and its people”. Matters would have been clearer had there been more information on what exactly the sticking points were in the inconclusive round of talks that ended earlier this week.

Parts of his speech have fuelled anxiety that the government will resist taking the steps necessary to stabilise the economy. It is not unusual for a government to postpone the reckoning when faced with growing and unsustainable deficits in the economy, but there is hardly any instance when delaying the inevitable has worked out well. Emphasising that the government would not succumb to any pressure that would burden the people has other implications: the government is not doing the IMF a favour by asking for a bailout, and putting the talks off for a while is unlikely to change the country’s negotiating position. The pressure to undertake an adjustment is coming from the play of impersonal economic forces, not from any institution or individual. True, the pressure can be temporarily mitigated through assistance from friendly countries, but it cannot be wished away, and is unlikely to abate on its own as time goes by.

Going by the finance minister’s words, it is evident that the government is getting cold feet at the idea of undertaking an adjustment. There are good reasons to be apprehensive, since the fiscal and external-sector deficits are too large for the economy to sustain for much longer without triggering a financial crisis. For the moment, the external sector is seeing some respite due to the falling oil prices and the rising remittances, but these are not going to be sufficient to plug the massive trade deficit. The fiscal side has turned in a disappointing performance as evident in the latest numbers for the first quarter. This delay will not benefit the government as the clock approaches the hour when it must embark upon the road to recovery through adjustment and reform. The markets are watching, and trepidation has a price in this cold, cruel world.

Published in Dawn, November 25th, 2018