IMF Loan Delay Sends Pakistan, Its Economy, into a Tailspin

The most charitable description of Pakistan is that it is “on way to failing”, but “not yet a failed” state, as its economy goes into a tailspin triggering social misery. But as its rulers await external help, nervously and impatiently, the writing on the wall, full of warnings, is clear and can be read with eyes wide shut.

Uncharitably though, it is tempting to fault the International Monetary Fund (IMF) and Pakistan’s friends Saudi Arabia and the UAE, for mercilessly driving the knife too deep into Pakistan’s polity. They are demanding structural reforms in the economy when the people are suffering at the very delay in the release of the global lender’s tranche. Assuming it is cleared now, relief would arrive only by mid-March.

Pakistan’s ruling circles are in panic after the IMF team that came to negotiate the details left without reaching a final agreement last week. This was despite daily interventions by Finance Minister Ishaq Dar and Prime Minister Shehbaz Sharif who agreed to all the preconditions. 

Large gaps in talks obviously persisted. “The IMF’s carefully crafted, short concluding statement on the 10-day loan talks further underscores these gaps, despite the “considerable progress” on measures to remedy domestic and external imbalances,” Dawn newspaper (February 11, 2023) said in its editorial.

In mirth amidst this misery, commentator F S Aijazuddin asks rhetorically (Dawn, February 9, 2023): “Why does the IMF repeatedly expect Islamabad to implement long-term solutions (such as structural reforms) when governments there govern from day to day?”

He gamely berates the IMF. “Even after 23 programmes, the IMF seems consistently to neglect the cardinal principle of international lending: KYC — Know Your Country.”

The inflation in Pakistan at 33 per cent, up from 19.7 per cent in March 2022,  is at its highest with basic daily necessities like wheat flour going beyond the reach of even the middle classes, when not hoarded. Tea has gone dearer with shortage as the country does not have the necessary foreign exchange to secure the release of shipments awaiting clearance at the Karachi harbour for the last three months.

As foreign exchange reserves drop critically to below $3bn because of dwindling official foreign inflows, the dire situation, however, has not prevented profligacy in Pakistan. For one, it staged the annual “Kashmir Solidarity Day” on February 5.  Humanitarian though, it rushed relief to ally Turkey (though not Syria) where thousands have died after a severe earthquake. If reports are to be believed, struggling to hold on to power while tackling a failing economy, Shehbaz Sharif was ready to rush to Ankara with relief material till the Turkish government urged him to arrive on a more convenient date.

Apart from the usual political blame game, the failing economy has not prevented the political class from engaging in their daily zero-sum game and taking all their disputes before the highest court. Former premier Imran Khan continues to regale the media from his plush Banigala estate or Zaman Park residence, demanding early elections.

Its own car production stopped with 250,000 workers laid off, Pakistan has continued to import used cars worth billions. Sharif has not cancelled imports as that would anger the privileged classes who have scuttled the reforms that the IMF and friendly countries are demanding.

The worst cost-of-living period on record is morphing into a social and public health crisis, Sakib Sherani, who has been on several Economic Advisory Councils in the past warns (February 11, 2023). While there is little idea of rural misery, even the city-dwellers are cutting down on food and medicines. He points to even middle-class people having to seek help from total strangers, as he encountered some, to meet their daily family needs. Economic indicators, however well-meaning, he admits, “can seldom capture the full enormity of the devastating impact on people’s lives of economic downturns, inflation, unemployment and ‘adjustment’ under IMF programmes.”

Stressing on urgent clearance of the desperately-sought loan tranche, Dawn editorial warns: “…. the failure to close the deal quickly will have more serious consequences. There is a lesson to be learnt from Sri Lanka. Things can get a lot more difficult for Pakistan if the talks drag on unnecessarily.”

The last word, ‘unnecessarily’ reflects the desperation of the situation, of being unsure whom to blame more — the donor or the recipient.