IMF rescue package

March 30, 2020

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IT is heartening to hear that the government is in fast-track talks with the International Monetary Fund to accelerate balance-of-payments support for Pakistan as the country gears up for its fight with the coronavirus. The lockdowns that are necessary will exact a terrible toll from industry, and more importantly, from the workforce and the poor, who must be protected, even if extraordinary measures are required. This effort will not only cost money, primarily for ramped-up social protections schemes and investments in healthcare provision, but many of the targets set in the IMF programme are now going to have to be set aside almost entirely. Some examples might be revenues and spending, as well as ceilings on government borrowing. These are extraordinary times and all tools available to the state must be mobilised to build the capacity necessary for success in this fight. There is no alternative to lockdowns to arrest the spread of the virus, and there is little option but to rapidly boost social protection programmes to enable the vulnerable to weather the resultant freeze in their incomes. The only question right now is how to get all this done.

The IMF has hinted in its statement that its support will be focused on health and social protection, which is the right place for the emphasis to be. But money is fungible, as the Fund is no doubt aware, and external assistance should not mean that the government diverts its own resources, meagre as they may be, towards priorities other than securing access to essential items for the poor and vulnerable and ramping up healthcare. There is a large pull on the state’s resources from owners of capital who are speaking about protecting their workers, but in reality are out to protect their own profits. IMF assistance should not provide a cover for resources to be diverted towards this.

For its part, the Fund will need to think about inverting many of the ways in which it has seen the policy framework in Pakistan. Suddenly, it is a good thing that power has been devolved to the provinces since they are today providing the most robust response to the threat. This is a good time to put more resources in the hands of the provinces, perhaps by lowering the provincial surplus targets, to enable them to ramp up their response. And suddenly growth, revenues and debt sustainability are no longer the top priorities for the economic managers. In fact, the Fund now finds itself in the awkward — but essential — position of calling for debt relief for heavily indebted countries like Pakistan so resources can be diverted to the fight against the virus. The quicker the economic managers and their counterparts in the multilateral agencies learn and internalise the new thinking that they now have to demonstrate, the better prepared we will be to wage the fight that has only just begun.

Published in Dawn, March 30th, 2020