At last! The IMF has coughed up about US$ 575 million to keep Pakistan from drowning in a sea of debt. The World Bank has also dished out US$ 350 million for structural reforms and the ADB is expected to follow suit with some short-term handouts. But all this is a far cry from the US$ 5.5 billion “bailout package” which Mr Ishaq Dar had dangled before us so tantalizingly for several months.
Indeed, the package is quite cheerless, especially since the largest chunk of US$ 500 million is in the form of a concessionary finance facility at market interest rates rather than the attractive terms of the ESAF and EFF normally available to Pakistan. Mr Dar has accordingly trimmed his sails to suit the prevailing wind. He is now merely “hoping” that the Paris and London Clubs will consider his request for US$ 2.4 billion in debt deferment “sympathetically”. In other words, some but not much relief may be expected on that score.
Mr Larry Summers, Deputy Secretary of the US Treasury, didn’t mince his words when he put American assistance to Islamabad in its true perspective: “Mr Clinton has asked us to keep Pakistan’s economy afloat for a year”. And what happens after that? Mr Summers was categorical: “After that, Pakistan has to satisfy US concerns”. And what are US concerns? Signing and ratifying the CTBT within the next six months, freezing fissile material production, amending the constitution to ban the export of nuclear technology or know-how, a halt to missile testing, making peace with India and lending a hand to America in its aggressive crusade against Osama Bin Laden’s brand of Islamic terrorism. Over and above all this, Islamabad has been “warned” to stay on the right side of the IMF and abide by its stringent terms and conditionalities — an impossibly tall order by any stretch of the imagination!
Leaving aside America’s nuclear demands which Islamabad cannot comply with without reciprocal action by India, the terms of the IMF are not to be shrugged off. Mr Dar has bravely outlined them for the “medium-term”: GDP growth rate to be doubled from 3% to 6%; current account deficit to be halved from 3% of GDP to 1.5%; rate of domestic savings to be increased by 25% from 12% of GDP to 16%; a 50% reduction of the fiscal deficit from 6% to 3%; halving the rate of inflation from 12% to 6% and a rapid increase in the availability and quality of social services like education, health, population control and rural water supply. Is this economic agenda “do-able”?
Yes and no. Yes, if Mr Sharif is able to force Pakistan’s business-bureaucratic elites, including his own family, parliamentarians and constituents, to stand on their heads, empty out their pockets to the public exchequer and invest their “foreign savings” in Pakistan. No, if he remains true to form — wasteful, reckless, opportunist, dictatorial and devoid of vision.
Mr Sharif, of course, shows no signs of changing his spots. Wasteful “prestige projects” (motorways, airports, yellow tractors and cabs) are still on; reckless policy shifts (a 30% reduction in power rates two months ago is to be reversed by a 30% increase in the coming months) remain the order of the day; backtracking on GST, loan defaulters and money launderers is a sign of political opportunism; the approach to the IPPs is markedly dictatorial; and a sweeping loss of business confidence, domestic and foreign, testifies to the perception of a total lack of vision in the prime minister.
Worse, economic impoverishment and uncertainty is compounded by continuing political instability and a dismal “law and order” situation. The “democratic” PML(N) government in the NWFP is hanging by a horsetrader’s thread; the “authoritarian” one in Sindh is hamstrung by a belated but welcome judicial reassertion of independence; and Punjab is racked by sectarian terrorism which has curtailed even the prime minister’s mobility to roam far and wide. Meanwhile, the constitution has been so mangled by past and pending amendments and increasing incursions of the military in civilian affairs that popular demands have surfaced for a thorough restructuring of the federal arrangement and opposition alliances are gathering momentum to achieve the minimal mass required to try and overthrow the government. Indeed, Benazir Bhutto has now gone so far as to call for a military intervention to “save the situation”!
Mr Sharif is floundering in quicksand. Ordinary people are deeply alienated and resentful. The business community has no confidence in him. The opposition is ganging up for a showdown. And the judiciary is waking up from its slumber. Worse, the Americans have got him by the short and curly. If Mr Sharif doesn’t deliver on their nuclear agenda, they will let him sink. But if he tries to go the whole hog with them, the security establishment will nip him in the bud. It is no different on the economic front. If he tries to abide by IMF prescriptions for belt-tightening all round, the power of the bazaar and the might of the robber-barons will coalesce with the power of the people to uproot him.
We are in for a rocky time. It’s time to fasten seat belts again.