Serious errors committed in negotiations for IMF package Wrong data was used causing repercussions for rupee, inflation

The News Mehtab Haider Saturday, September 28, 2013 ISLAMABAD: Very disturbing facts are slowly emerging about how Pakistani negotiators committed serious errors on several counts while negotiating the $6.67 billion loan agreement with the IMF. The wrong policy prescriptions played havoc with the economy, as it resulted into putting pressures on exchange rate in the aftermath of the IMF deal.Many important heads might roll over these glaring mistakes committed knowingly or unknowingly, especially by the high-ups of the State Bank of Pakistan (SBP), officials fear. First of all, the sources said, Pakistan’s negotiating team agreed with the IMF by pitching lower current account deficit (CAD) for showing improved performance of the national economy but it was contrary to the ground realities. The analysis of current account deficit (CAD) shows that it stood at $1.4 billion for quarter (Jan-March) period of 2013 and at $1.2 billion for April-June 2013. In a strange move, the CAD was pitched at negative $1.6 billion for the whole financial year 2013-14. How it was possible for such huge reduction and what was the basis for it is still not known. As in first two months (July-August) 2013, the CAD was standing at $636 million and would be touching $1 billion in the first quarter ending on September 30, 2013. In the previous programme with the IMF in 2008, the Pakistani team had pitched CAD on higher side by incorporating highly reliable foreign inflows with 100 percent surety in a bid to reduce envisaged target on NFA in much smart manner. But this time, the NFA targets were set without involving input from competent authorities especially from economists that resulted into negative impact for the country’s economy. When asked to comment on using wrong data, a senior official of Ministry of Finance said: “These were just projections made by the IMF and the government would make all out efforts to improve macro-economic indicators.” “There was no economic justification for steep decline of rupee against US dollar as the country was under the discipline of IMF for achieving macro-economic stability,” the official said.He added: “The government recently finalised the deal with international and domestic banks to generate $625 million to improve the country’s reserves position and there were institutions which were willing to provide multibillion dollar assistance to Pakistan; however, the government would take the decision to get foreign loans keeping in view the prudent policies and justified economic decisions.” The Finance Ministry version notwithstanding, under the Pak-IMF deal, sources said, the targets of Net Foreign Assets (NFA), Current Account Deficit (CAD) and inflation figures were calculated on the basis of wrong assumptions, exposing abilities of both the IMF as well as Pakistani team. However, in the IMF there is no accountability mechanism so no one would be held responsible despite having equal share in devising wrong policy prescriptions for the country.“There is need to ascertain facts before holding someone responsible among Pakistan’s negotiating team for the fiasco meted out in exchange rate where rupee nosedived against dollar in recent few days mainly because of SBP’s becoming a player into the market for purchasing dollars for meeting the IMF’s envisaged criteria on achieving quarterly target on September 30,” said sources privy to this ongoing development here on Friday. As the devil lies in details, if the situation is analyzed carefully then it will come on surface that all powerful DMG officers are in the driving seat in the Ministry of Finance as Additional Secretary External Finance Shahid Mehmood has also assumed the charge of Special Assistant to the Finance Minister. Joint Secretary in External Finance is Naveed Allaudin who had worked in corporate finance in the finance ministry and mostly possesses experience for working in the provinces. Kamran Ali Afzal, who is JS Budget in Finance Ministry, also assists the finance minister. On the other hand, the capacity of Economic Advisor Wing of Finance Ministry is known to everyone, as there is no comparison between the incumbents, with the former Economic Advisor Dr Ashfaque Hassan Khan who knew the IMF language and techniques fully and its repercussions for the country’s economy. “One may like it or not, there is only person in Finance Ministry who holds command on dealing with the IMF and that is Secretary Finance Dr Waqar Masood, but it is not yet known why he was unable to avoid some glaring mistakes in the preparation for the IMF negotiations and programme,” said the sources. On inflation target, both Pakistan and the IMF again pitched at lower side by projecting it to go close to 8 percent for the current fiscal year but all actions of this government are contributing towards inflation on the higher side and will be standing at least 12 to 12.5 percent on average in 2013-14. The SBP agreed with the IMF to use exchange rate anchor instead of monetary anchor that is also a major factor for putting pressure on rupee against dollar in recent days.The administered price-based inflation will increase the GDP’s nominal denominator and distort the size of economy.