Trouble at the start line

RARELY have I seen things as scattered and messy as they are today, in the realm of economic management in any case. At the epicentre of the mess is the IMF programme, all dressed up with nowhere to go. A staff-level agreement (SLA) was announced by the Fund on July 12, more than five weeks ago. Then on July 23, on the eve of his departure for China, the finance minister assured the country during a televised interview that board approval for the programme should be done by end August.
On his return from China, we learned that the government raised the question of rescheduling some payment obligations to sponsors of Chinese power producers, as well as advance rollover guarantees for maturing obligations on debt owed to Chinese commercial banks among others. We were also told that the process for getting all this had begun during the visit. Meaning we had, after a long and fraught journey, finally reached the start line of where we needed to be.
Now comes the hard part. Getting the Chinese to actually agree to these guarantees and rescheduling requests is probably a tougher sell than originally anticipated. Meanwhile, the Executive Board calendar of engagements for the remaining days of August was released last week, and Pakistan was not featured in it. Yesterday (Aug 21) the same finance minister assured a parliamentary committee that the approval would come in September, and mentioned something about a ‘Deposit Protection Bill’ that must be passed by October, as one possible item still under discussion with the Fund’s staff before the programme can be forwarded for board approval.
Here is what it looks like. They were asked by the IMF to get certain conditions approved by the Chinese before the programme could be expected to get board approval. They went to the Chinese, who were most likely unhappy with the request, and urged their Pakistani friends to stand firm against Western pressure and attempts to drive a wedge between the ‘Iron Brothers’. If rescheduling or other such treatment is required for Chinese debt obligations, they were told, then it will be necessary to take that up with the firms to whom this debt was owed.
This is not what the Pakistani side wanted to hear. Chasing up individually with each project sponsor, and each commercial bank, and each state-owned entity to whom the debt obligations were owed would be a cumbersome and sprawling task. What they had most likely hoped was that they could just speak with someone high up enough in the state who could simply issue the necessary orders to get all this done. But the Chinese state is not a monolith, despite being a one-party state.
It seems there was no way around it. So on their return it was solemnly, and reluctantly, announced that a consultant was going to be retained and a large front was going to be opened up with the many categories of Chinese creditors to get the assurances necessary to forward the SLA for board approval.
Meanwhile, the prime minister had announced, with some fanfare, the formation of a task force to be led by Stefan Dercon, the celebrated Oxford academic who has written an influential book on how countries embark on the process of economic reform. But when the first draft of the report being prepared by the task force was presented to the PM, he was left unimpressed, disbanded the task force, and appointed a new one under the leadership of former finance minister and PML-N stalwart Ishaq Dar.
Back to square one. Dar is one of the oldest members of the party; he has been there since their first stint in power back in the early 1990s, and has served as finance minister on at least three occasions. Each time he set the stage for the country to approach near default levels of a balance-of-payments crisis. His thinking on economic affairs is strange. He seems to think Pakistan has unlimited borrowing capacity, and its economy can afford to grow in a way that depletes its foreign exchange reserves, provided he can keep replenishing these reserves with borrowed money.
What sort of a vision is he going to produce that he has not already produced in the past? And if every stint of his as finance minister ended with the country either drifting dangerously towards default, or on the very edge of it, what is the sense of bringing him back for a fourth time to develop the overall vision this government intends to follow?
Meanwhile, the ruling party is already reeling from the power tariff increases it has had to pass. Even now, some of the tariff hikes have been withheld in an effort to mitigate the impact on the citizenry, so another hike has to come in the months ahead. Meanwhile, electricity bills on the new tariffs have started coming in and across the country there is an outcry. In one case that I have seen, of an individual whose consumption is always slightly below or slightly above 200 units, the charge per unit increased from Rs20 in the bill received in July to Rs51 in the bill received in the month of August.
The ruling party reacted by announcing a ‘temporary relief package’ by diverting development sector funds towards a power subsidy to be funded by the Punjab government. This is fine, but power tariffs are actually rising due to the kinds of macroeconomic policies that Mr Dar usually implements, which create massive pressures in the economy that ultimately have to be released by a massive devaluation, spiralling taxes and power tariff hikes. So what is the sense of putting Mr Dar in charge of the government’s economic vision, while scrambling to arrange ‘temporary relief’ for consumers from debilitating power tariff hikes? This government is now clearly in reactive mode, and has lost the initiative when it comes to economic matters. It has run into trouble at the start line.
The writer is a business and economy journalist.
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X: @khurramhusain
Published in Dawn, August 22nd, 2024