THE government now finds itself at the crossroads and whatever path it chooses, it will likely create history. The crossroads has been reached by the resumption of the IMF programme, and the choice the government faces is whether to proceed down the path of deficit reduction as committed to the Fund or chart a course with the coming elections in mind. The two cannot go hand in hand for very long because the first involves tightening the belt and the latter involves increased spending, so a choice has to be made.
Editorial: The govt can't grow the economy rapidly if it has to implement harsh IMF stabilisation policies
If they choose to stick to the commitments that former finance minister Hafeez Sheikh gave to the IMF that won approval from the IMF board on March 24, they will have to sharply curb spending, raise power tariffs and fuel prices, increase taxes and roll back the many supports they have been providing to industry ever since the Covid crisis, supports that people in industry have grown accustomed to.
The prime minister has been coming under increasing pressure from within his own party to allow greater spending by his MNAs in their constituencies to help shore up their electoral prospects in the forthcoming elections. In order to be ready to face their constituents and voters in 2023 — a reality they will face less than two years from now — they argue they need to start spending on uplift schemes and projects immediately. Thus far Hafeez Sheikh kept a tight lid on these expenditures, making him a deeply unpopular figure within his own party. He was more mindful of his commitments to his creditors than he was to the demands of his party MNAs.
Increasingly now, signs are suggesting that the government intends to try and renegotiate the terms of the Fund programme.
Increasingly now, signs are suggesting that the government intends to try and renegotiate the terms of the Fund programme that Sheikh signed. It is difficult to imagine how this can be done though, given the board approved the commitments and the first tranche of $500 million against that approval has already been issued. Hammad Azhar has said in his maiden press conference that the Fund agreement can be “reviewed” while Imran Khan said, at the launch of a UN report on Tuesday, that he will seek a “second package” from the IMF.
It is unclear what exactly these words mean. Is Hammad talking about the routine reviews that all IMF programmes undergo as they are implemented? Or does he want a ‘review’ of the commitments before embarking on implementation? And by ‘second package’ is Khan referring to another set of commitments under the existing programme? Or does he intend to ask for another loan like the one they got last April when the Covid lockdowns began, the $1.4 billion from the Rapid Financing Facility that came without any strings attached?
Either way it will be a big feat if they succeed in persuading the Fund to change the targets envisaged in the commitments given by Sheikh to the IMF before his departure. I don’t recall another time when the targets of a Fund programme were renegotiated so soon after board’s approval and disbursement of the tranche.
If they stick with the commitments they will make history by being the first government in at least a quarter century, if not longer, to undertake an IMF-mandated adjustment twice in one term. All preceding governments have followed the same course: they come into power, find the foreign exchange reserves depleted, approach the IMF for emergency support, implement a painful adjustment for one or two years (sometimes even three), build up the reserves and fiscal space, then switch to election mode and spend heavily to try and shore up their electoral prospects, a move that again depletes the reserves and runs up the deficits.
No government has managed to win re-election for the past three decades at least, which means every government ends up leaving behind a depleted treasury and large deficits for its successor who then walks down the same path. We have seen this story repeated since at least 1988, when our story of eternal return to the IMF began. What we have never seen, however, is a government undertake an adjustment twice, and least of all, embark upon an adjustment precisely when the shadow of the forthcoming elections starts to loom.
It is of little surprise that they have cold feet about implementing the commitments given to the IMF by Sheikh. We don’t know what those commitments are because the Fund had not, till the time of writing this, released the programme documents. The standard practice is for these documents to be released within a couple of days following the board’s approval. But more than 10 working days have elapsed since the board’s approval on March 24 and there is still no sign of them so far. The IMF says their operation has slowed due to Covid-19, and workload ramped up due to the spring meetings underway in D.C., but those began on April 5, more than seven working days after the board’s approval. The delay in making the programme documents public is puzzling, to say the least.
On the other hand, if the government decides to ‘renegotiate’ these commitments, it runs the risk of setting the stage for another balance-of-payments crisis within a year or two. Already the fiscal deficit is set to come in at higher than 7pc, and the trade deficit is growing faster than the exports and remittances on a monthly basis. If they decide to pump growth in the forthcoming budget, as Hammad Azhar has tweeted they plan to do, it will accelerate this and give rise to fresh deficits all over again. In that case this government could make history by being the first government ever to face two balance-of-payments crises in a single term.
It is not an enviable crossroads they are standing at right now, and how things go with the IMF are critical to how the political scene will evolve.
The writer is a business and economy journalist.
khurram.husain@gmail.com
Published in Dawn, April 8th, 2021
THE IMF’s new forecast of a subdued economic growth rate of 1.5pc for Pakistan in the current fiscal represents an upgrade from its October estimate of 1pc. Still, it is consistent with the lender’s previous view of the economy in the Covid-19 landscape. The new projection is in line with the World Bank’s revised forecast of 1.3pc given in its Pakistan Development Update published simultaneously with the IMF’s World Economic Review.
Nonetheless, it falls shy of the government’s growth target of 2.1pc in addition to being far less optimistic than the State Bank’s latest recovery estimate of 3pc. Last year, the economy had contracted by 0.4pc during the pandemic. Their different figures for growth notwithstanding, SBP and IMF seem to have a similar outlook on other macroeconomic aspects: fiscal balance, inflation and current account deficit. The global lender also expects growth to pick up next year, projecting the economy to expand by 4pc, with inflation slowing down slightly and the current account deficit widening marginally. The medium-term outlook up to 2026 sees relatively steady economic expansion with a stable external sector but higher inflation.
The World Bank has drawn a slightly bleaker picture of the economy and the impact of the virus on people and jobs — “…economic activity is projected to be dampened in the short term by the fiscal consolidation measures associated with the resumption of the IMF stabilisation programme as the economy regains its footing”, it says. The bank expects economic growth to recover slowly given the uncertainties surrounding the pandemic, including the emergence of new strains. The World Bank also points to increased poverty, jobs and food insecurity owing to the impact of the virus on vulnerable segments of the population.
The recent changes in the top ranks of the government’s finance team show that the country’s political leadership is worried about slower recovery in a high-inflation environment. The reconstitution of the ‘advisory council’ and the inclusion of pro-growth businessmen and experts in it reflects a desire to change course from economic stabilisation to growth in order to lessen the devastating effects of the health crisis on the economy and job creation, and to find fiscal space to help vulnerable groups as the current wave threatens to derail the fragile recovery seen since last summer.
Prime Minister Imran Khan plans to approach the IMF for relaxation in its loan conditions as he sees disruptions in the near future on account of the infection’s resurgence. Indeed, the government is in a difficult position: it cannot grow the economy rapidly or help businesses if it has to implement harsh IMF stabilisation policies. Nor can it ditch the programme without sending wrong signals internationally. The only way out is to convince the Fund to soften its conditions for the remaining period of the loan to provide the government with room to pursue pro-growth strategies.
Published in Dawn, April 8th, 2021
WITH the enactment of the Domestic Violence against Women (Prevention and Protection) Act in Khyber Pakhtunkhwa in January 2021, all four provinces of Pakistan are now equipped with legislation that is instrumental for addressing domestic violence. The new law is a landmark one for the province, and a comprehensive piece of legislation that is expected to play a pivotal role in protecting women, and equipping the duty bearers to dispense justice more effectively and efficiently.
The law has devised effective reporting, gender-sensitive, survivor-centric, quality services and preventive strategies for transformative change in society. The enactment of this act negates the belief that domestic violence is a private matter of any household; it has now become the state’s responsibility to protect women from violence.
According to the Human Rights Commission of Pakistan, the most common forms of domestic abuse are shouting or yelling (76 per cent), slapping (52pc), threatening (49pc), pushing (47pc), punching (40pc) and kicking (40pc). According to a media report, “KP police data shows an increase in the number of domestic violence cases registered in 2019, especially in murder. In 2018, 180 women were murdered in their households — in 2019, the figure rose to 217. Thirty-six women reported physical abuse at home in 2019, three times more than in 2018.”
The new KP law is a significant step towards women’s empowerment.
According to a report published in the Daily Mashriq, a local newspaper, in 2020, 5,515 women were brought to only five government-run shelter homes as survivors of gender-based violence including domestic violence.
In the period of the Covid-19 pandemic, data and reports from those on the front lines, have revealed that “all types of violence against women and girls, particularly domestic violence, has intensified”. According to the Director of Bolo helpline (managed by the Social Welfare Women Empowerment Department, KP) during periods of lockdowns, from March 2020 to December 2020, the ratio of violence increased by 45pc in KP, when the reported cases were analysed.
In the backdrop of the increased cases of domestic violence, this Act will ensure timely efforts are put in place to strengthen prevention and protection measures for the survivors. The Act has enabled a standard legal definition of ‘child’ at the provincial level which was not clear in the previous laws and the addition would be helpful in discouraging child marriages.
In addition, this Act substantiates the state’s commitment to the establishment of women shelters in every district, thus responding to the need for protection of survivors of domestic violence in a timely manner. The government of Khyber Pakhtunkhwa operates seven shelters (in Abbottabad, Chitral, Peshawar, Mardan, Swat, Haripur and Kohat) for women who experience domestic abuse. Each of the shelters hosts 70 women, according to the Khyber Pakhtunkhwa Social Welfare Department data. The province’s population is estimated to be over 35.5 million.
The Act provides for the setting up of 12-member district protection committees that would include members from different government departments as well as civil society, with 33pc of the quorum consisting of female members. The committee would be responsible for raising awareness among women at the community level about their rights under the law in addition to keeping a record of complaints, petitions and court orders. The secretary of the district protection committee will be the chairperson of the district committee on the status of women established under Section 8-e of the Khyber Pakhtunkhwa Commission on the Status of Women Act, 2016. But the formation and notification of these committees have been pending for years which would be a hurdle in the way of implementation of this newly enacted legislation.
Now that this important piece of legislation has been passed, its effective implementation is vital. Further challenges are foreseen in terms of enforcement to make it trickle down and benefit the survivors of violence as the response mechanisms still require strengthening. Like other laws of the land, it could be complicated to draft and approve the rules of business which are essential for implementation, and the notification of district committees on the status of women will also be required, as stipulated in the Act. It is now crucial for the government of KP to efficiently plan, budget and take practical steps for all essential services and response mechanisms for effective implementation of this significant legislation.
Sharmeela Rassool is serving as the country representative of UN Women Pakistan.
Riffat Sardar is the chairperson of Khyber Pakhtunkhwa Commission on the Status of Women.
Published in Dawn, April 8th, 2021
