‘My best to the mother and debtor,’ a colleague’s message of congratulation to a friend recently – on the birth of his daughter – aptly summed up Pakistan’s biggest dilemma. Every person, in a country of more than 220 million, carries a debt burden of approximately Rs140,000-150,000 (approximately $1,035-1,110). And now, despite Imran Khan’s campaign promise of “breaking the begging bowl,” we’re just about to incur more debt to take care of the mountain of old debt.
By March 2018, Pakistan’s external debt and liabilities had reached a record $91.8 billion. This meant a 51 per cent rise in Nawaz Sharif’s four-and-a-half years in power till then. Since much of it went towards interest payments on old credit, and some towards high visibility projects that fetch votes but little by way of revenue, and no structural reforms were undertaken, the loans triggered the worst balance of payments crisis in living memory. Pakistan’s gross external debt in terms of exports, which stood at 193.2 per cent in 2013, shot up to 316 per cent by June 2018, just when the Pakistan Tehreek-e-Insaf (PTI) was riding its Naya Pakistan (New Pakistan) mantra to power.
But there’s fiscal space for only so much when default’s staring right in your face. The new government needed, and still needs, an urgent $12-15 billion to stay solvent, which left little choice but approaching the International Monetary Fund again. That, of course, meant Imran would have to go back on his word yet again in the few weeks he’d been the prime minister. Yet the more he wasted time groping time-tested and all-weather friends for a no-strings-attached bailout, the more the uncertainty squeezed life out of the market. It was only when the market was in meltdown that the government finally announced the programme.
The market turned, alright. Finance Minister Asad Umar would have started breathing easy, especially after the six-day rout that haemorrhaged around 2,000 points, sending billions of money to heaven. But then somebody in the central bank (governor?) thought it’d be a smart idea to pull the floor from under the rupee and bring the currency more in line with IMF expectations. That caused the largest ever single day collapse of the local currency, falling 10 per cent against the dollar before recovering slightly.
Pakistanis are no strangers to the Fund. This will be the 13th programme since only the late 80s, after all. And while everybody in government has welcomed the bailout, the ordinary Joe is not so sure about a few things.
One, why did they wait for two months? The threat was as big as default and our only source of free money, America, was not playing ball. Why, then, did the government drag its feet and allow the bloodbath in the market? If they were worried about the optics of austerity that always comes with IMF, then they only made a bad situation worse.
Two, how smart were the devaluations, really? Surely if they hadn’t wasted the two months, and sat down with the Fund in the first few days – like Dar did in the previous cycle and PTI criticised it to no end – they would have agreed to more sensible depreciation. What, now, about the common man about to be hit with high inflation amid low wages in an already stagflated economy? Already prices are rising like a self-fulfilling prophecy. Even the grilled leg piece at the chicken tikka shop, one around the street corner, suddenly costs 30 rupees more. “IMF coming sir, everything expensive!”
Three, why the sudden optimism? This is, again, the 13th programme. And there’s a reason why the previous dozen could do the country’s long-term trajectory very little good. Plus, IMF programmes usually leave behind stagflation – low growth, high prices. This time, Pakistan is in stagflation going into the programme. Combine that with IMF’s notorious austerity and good luck, Mr Common Man.
Four, this is a bailout, right? That means this is fire-fighting money. This is a country version of an addict taking on more debt to pay off maturing old debt. But how will that make all the other problems go away? And aren’t we a country that borrows even to function? What are we going to do about that money? And, on top of it all, where will the money for development come from to make the Naya Pakistan?
And five, will somebody please explain what ‘structural adjustment’ really means. It turns out that – from South Asia all the way to Latin America – IMF programmes pass by like summer clouds unless you undertake structural reforms. But nobody’s quite defined them yet. Why does the finance minister think Pakistan will be the exception this time? Is it really as simple as PTI’s explanation, that previously the money would end up in private offshore accounts, now it’ll be routed to the economy?
Sadly, mismanaging the depreciation, needlessly wrecking the market and falling all over the bailout shows the new government did not quite understand the magnitude of the financial crisis. Now the middle and lower classes, saddled with debt for no fault of theirs, must once again face harsh austerity. Careful, though, since they are also the biggest voting population.
Shahab Jafry is a senior journalist based in Lahore