While addressing a select group of senior journalists in Islamabad on December 8, 2020, the Prime Minister made a stunning admission that not going to the IMF at the earliest for a balance of payment (BoP) support was a “big mistake” made by his government. He further stated that “we should have gone to the IMF straightaway, but we didn’t. It was a mistake”. His statement appeared in all the English language dailies, including Business Recorder, on December 9, 2020.
It was indeed a surprising admission after almost two and a half years of his government. The Prime Minister did not define what is ‘immediate’. Is it days, weeks, months, or first 100 days? The question is how ‘immediate’ is immediate? The traditional international practice is that the newly-elected government announces its priority tasks to be completed within the first 100 days in the office. Did our Prime Minister go to the IMF beyond 100 days in his office, if going to the IMF was a priority task?
In this article, this writer intends to present the exact time line from taking charge of the state affairs to the start of negotiation for an IMF programme with the visiting IMF Mission in Islamabad. I will leave to the readers, as well as to the Prime Minister, to judge whether the government went to the IMF late, right in time or much earlier than anticipated; or the statement of the Prime Minister constitutes an empirical evidence of my constant assertion that his economic team or few Ministers/Advisors are consistently misguiding him on economic issues?
The present government took charge of the state’s affairs on August 18, 2018. Within 14 days in the office, the government formed an Economic Advisory Council (EAC) on September 1, 2018 with Prime Minister himself in Chair. Whether to go or not to go the IMF was never discussed in the EAC until October 8, 2018.
The then Finance Minister Asad Omar called a historic meeting of the EAC on October 8, 2018. The sole purpose of the meeting was to get a mandate from the EAC members on seeking financial support from the IMF. In order to broaden the scope of the mandate, Asad Omar also invited non-members such as Dr. Hafiz Pasha and Shahid H. Kardar to attend the meeting chaired by the Prime Minister. With the exception of this writer, all other members and non-members unanimously gave the verdict in favour of going to the IMF.
Right after the meeting that ended in the evening, Asad Omar, through a video message, announced that Pakistan would seek the balance of payment (BoP) support from the IMF and that he would meet the then Managing Director (MD) of the IMF in Bali, Indonesia. This was the 51st day of the government when it announced going to the IMF. A Pakistani delegation led by Asad Omar left for Bali on the same night (October 8) to attend the Annual Meeting of the IMF-WB. On October 11, 2018, the Pakistani delegation met the MD of the IMF and sought financial assistance. The MD IMF assured the Pakistani delegation that a team of the IMF experts will visit Pakistan for talks on a possible bailout in coming weeks. On 54th day in power, the government officially requested for an IMF programme. An IMF delegation arrived in Pakistan on November 7, 2018, and started negotiations with Pakistani authorities for a bailout package. In other words, on 81st day in the office, the Pakistani team was negotiating with the IMF for a bailout package, well within the first 100 days in the office.
Should approaching the IMF on 54th day and negotiating a programme on 81st day in the office be considered as delay in going to the IMF for a bailout? How early could the government have approached the IMF? Next day, next week or next month? How much benefit could have been accrued to Pakistan had the government gone to the IMF the very next day in the office? How much benefit the economy of Pakistan has achieved in the last 21 Programs with the IMF?
In this writer’s opinion, the Prime Minister and his government approached the IMF in the minimum possible time, that is, within the first 100 days of his government. It was not the delay in going to the IMF that has costed Pakistan’s economy but it was the prior actions that the IMF had asked Pakistan to implement before the signing of the programme.
As stated earlier, an IMF Mission landed in Pakistan on November 7, 2018, and started negotiating for a possible bailout programme. The negotiation lasted for about three weeks. At the end of the talks, the IMF mission handed over a list of prior actions to Pakistani authorities. The list of actions was extremely excruciating to be implemented by a democratically elected government anywhere in the world. Given the nature of the Prime Minister, it was extremely painful for him to put so much burden on the people of Pakistan in general and the poor in particular in the shortest possible time.
The list included the usual four-decade-old prescription, that is, raising discount rate, devaluing currency in the name of market-based exchange rate regime, an irrelevant tax target, and unprecedented increase in gas and electricity prices. These prior actions were perhaps the toughest ever given to any country who sought balance of payment (BoP) support from the IMF. But certainly, it was the toughest prior actions that were given to Pakistan in the previous 21 programmes.
The sooner these toughest prior actions were implemented the sooner the IMF and the Pakistani authorities would had signed the Agreement and with that the first tranche of the $6 billion IMF Programme would have been released. These prior actions were such that any elected government, if implemented, would had become extremely unpopular among the masses at the very beginning of its tenure. Was this the intended purpose? This writer leaves it to the readers to judge from the facts as presented here.
While the government continued to implement those prior actions to the best they can, Prime Minister Imran Khan and Asad Omar continued their engagement with the IMF authorities at different levels for softening of some of these agonizing conditions. To the best of this writer’s knowledge, the IMF did not alleviate their conditions. The Prime Minister was in pain, particularly for the poor as he never wanted to burden the poor with price hike on the one hand and joblessness on the other.
The readers of this newspaper would recall that Pakistan was forced to leave its exchange rate at the mercy of the market with very little reserves to support it. The discount rate was shooting towards the destination like a passenger desperately tries to catch a moving train. The prices of gas and electricity were raised at an unprecedented pace. The actions on exchange and interest rates alone burdened the country with $40 billion cost, and the hike in utility prices rendered our industries non-competitive in international market.
Although, Pakistan approached the IMF much earlier than anticipated, it took six months to implement those brutal prior actions and change in economic team to sign the agreement in May 2019. No sensible and democratically-elected government anywhere in the world would have implemented such prior actions in one go. It was natural for the Prime Minister to implement the conditions in a gradual and yet in an effective manner.
In the meantime, the Prime Minister had to take yet another painful decision of sacrificing Asad Omar, his ‘opening batsman.’ He was also “forced” to accept two “strangers” in town he had never met before. The two “strangers” to his party landed in Islamabad and Karachi by helicopter to sign the Agreement with the IMF and took charge of Pakistan’s economy.
The Prime Minister was unlucky to take charge of the state affairs at a time when the geo-strategic environment was changing rapidly. The IMF was no longer a benign IMF as it was in 21st programme (2013-16) when it accorded 15 waivers in 16 reviews of the programme. It kept its eyes and ears closed when data manipulation was at the peak to meet all the IMF targets on paper. The readers may recall this writer’s writings as well as those of Drs. Hafiz Pasha, Salman Shah, and few others in this very newspaper during 2013-16 on how data were manipulated to meet the targets on paper. The changing geo-strategic environment also changed the IMF to become a highly unkind institution. They came with the most difficult program ever given to Pakistani authorities in the past.
The Prime Minister’s biggest mistake was that he did not ask his EAC to come up with an alternative to the IMF programme. Seeking or not seeking an IMF programme was never debated in the EAC meeting. The EAC members were never put to test to their ability to design an alternative. The IMF has always been a lender of the last resort. But it appears that his four/five cabinet Ministers/Advisors had convinced him to choose IMF as a lender of the first resort. Choosing IMF as a lender of first resort and not the last resort was, his biggest mistake.
His second biggest mistake was that while the friendly and brotherly countries kept on helping Pakistan through generous assistance (approximately $14 billion), the inflows were put in a bucket which was leaked. These inflows were used to finance luxury and non-essential imports. We wasted these dollars on unnecessary imports. The best policy option would have been to pursue selective, yet aggressive import compression policy to protect the precious foreign exchange. It wasn’t done; perhaps the Government had already decided to go to the IMF as a lender of the first resort.
The government of Prime Minister Imran Khan approached the IMF much earlier than expected. As usual he was misguided by few of his ministers/advisors on going ‘late to the IMF’. Yes, it took him 6 months to implement the brutal prior actions of the IMF programme. No democratically elected government would have implemented those prior actions in one go. Had the Prime Minister implemented those prior actions in one go, he would have repeated the fate of the Indonesian people who suffered after the 1996/97 East Asian financial crisis. Certainly, it would have been unbearable for Pakistani people and he would have lost his popularity instantaneously. He was unlucky to be at the helm of affairs when the geo-strategic environment was changing rapidly and he would have to face the wrath of the IMF. His greatest mistake was that he did not ask the members of the EAC to come up with an alternative to the IMF programme. He did not put into test the ability of the EAC members in coming up with an alternative.
Dr Ashfaque H Khan, "IMF: What was PM’s real mistake?," Business Recorder. 2020-12-16.Keywords: Economics , Economic growth , Economic issues , Pakistani delegation , IMF delegation , Pakistan-Economy , IMF programme , Imran Khan , Asad Omar , IMF , EAC , MD