Chasing the Dragon
Addictions are complex, and money, like some drugs, can be very habit forming. It all starts with the high from the first fix, and all is right with the world until it wears off. So it is with borrowing and it is time for another visit to the dealer. You have already been back several times and the dependency is established, the body has developed debt-tolerance and you use what money you have to buy more. Then you run out of money, really run out, and go fiscal deficit, start pawning the family jewels, but the dealer wants more, the deal comes with ever heavier conditions but the need never diminishes and that elusive feeling that went with the first fix of hard cash never comes back – and then you are chasing the dragon.
Having endured cold turkey for as long as financially possible the government in the form of Finance Minister Asad Umar is in Washington for a moot with the Dealer-in-Chief – the International Monetary Fund, the IMF. This is no furtive street-corner hook up, but an all bells-and-whistles moot complete with number crunchers and digital prestidigitators. The IMF has already warned that Pakistan’s growth is likely to fall to 2.9 percent during the current fiscal unless its programme was accepted and there is the crunch.
The IMF staffers are due to visit Pakistan at the end of the month with an expectation that they will formally sign off on the bailout package. There is talk of another tax amnesty scheme to be launched after the return of the Finance Minister which may seem like something of a contradiction given the desperately poor performance of the Federal Board of Revenue in the last fiscal, but the government as ever appears sanguine, and the Prime Minister interviewed for the New York Times was certain that Pakistan was going to avoid being blacklisted by the Financial Action Task Force (FATF) in the coming weeks.
Such a move would weaken the case for an IMF loan, and at the back of all this jiggery-pokery there is a fundamental truth. Pakistan has never been able via any of its governments to enact the structural reforms that would enable it to kick the habit, to tax the rich until the pips squeaked and create a tax regime that would make the state financially sustainable. It is not helped by the fact that it is surrounded by other shaky economies that need correction to adjust macroeconomic imbalances, and geopolitical tension – India, Afghanistan – also impact on the national economy.
Whatever the purely local problems might be Pakistan is at the mercy of a host of other afflictions that have indirect impacts – slower GDP growth in Saudi Arabia, American sanctions on Iran, the war in Yemen and Syria and a volatile oil market that has already seen a significant rise in the cost of fuel for the average motorist in Pakistan.
Taken in the context of the long view this host of variables adds up to a view of Pakistan being a forever-beggar. It lacks the political strength and will to kick the borrowing habit, and the IMF is mostly happy to play the role of dealer with a heavily dependent addict on the end of the line. There is a sense of barely-managed instability which is lit from within by a few points of light – the much improved security environment nationwide has to be viewed as a major achievement, the PM deft handling of the recent crisis caused by an Indian attack is another – but those alone cannot be parlayed into fiscal healing.
The PM was interviewed at length by the BBC’s John Simpson on Wednesday 10th April and put in a bravura performance, belied perhaps by the prominent bags below his eyes and a fading of the youthful look. In Washington the deal was being done as he spoke. There is no such thing as free money, and this time around the dealer is determined to have his pound of flesh. Much turns in terms of the future health of the Pakistan state as to whether he gets it or not.