File photo of Finance Minister Ishaq Dar, courtesy PID
The recent depreciation of the rupee and a hefty increase in petroleum prices indicates Pakistan is finally ready to return to the tough conditions of an International Monetary Fund (IMF) bailout after Finance Minister Ishaq Dar has failed to make good on any of the tall claims he made while pushing aside his predecessor Miftah Ismail. Dar acted with arrogance, often losing his temper when told of bad times and saying all is well, proving him dishonest and inefficient now. Those who supported his claims of the IMF acting as a bully have gone quiet, as he now waits to meet an IMF team that will undoubtedly stretch him on the wheel of its conditionalities.
The fact remains that if we do not go to the IMF, our economy will collapse and the country default, with little signs of any support from the “friendly” nations that Dar was banking on. In other words, Pakistan is on the brink of an economic meltdown that the only the IMF can prevent. The first casualty of this scenario is the abandonment of any claims of “relief” for the public. This is, unfortunately, not a unique situation for Pakistan, which has gone to the IMF for loans 21 times in the past. The current mess started with the ousted government of Imran Khan, who reneged on an agreement with the IMF because of public backlash over the “harsh” conditionalities he had to impose. The incumbent ruling coalition, rather than reversing course, continued his flawed policies, damaging the economy further.
In the past, allied nations—particularly from the Gulf—have come to Pakistan’s aid; no longer. The message is clear: fulfill IMF’s conditions and enact reforms before expecting any further support. The global lender expects Islamabad to raise tax revenues and utility prices, impose discipline on provincial spending—and let the currency fall, if need be. This is expected to help narrow Pakistan’s trade and budget deficits, but will also curb growth and increase inflation in the short- and medium-terms. Dar’s predecessor has claimed his successor’s stubborn unwillingness to submit to these demands earlier could have cost Pakistan $3 billion.
It is undeniable that economists believe the PTI-led government maintained an exchange rate too strong for exporters and fiscal spending well beyond its revenue generation. To course-correct and stabilize required painful policy reforms that have yet to materialize. Widening the tax net, a key demand of the IMF, has been committed repeatedly and reneged upon. This, however, it a tough ask for a country that—unlike its more prosperous neighbors—has yet to “regularize” a vast part of its territory and remains threatened by rampant smuggling and a lack of authority.