Dont spend it all at once: Pakistan and the IMF
Hello and welcome to the intelligence on economist radio. I'm your host. Jason Palmer every weekday. We provide a fresh perspective on the events shaping your world. In the west there seems to be a push towards vegetarianism and veganism, but that's just a tiny blip in a bigger upward trend in meeting around the world, that's bad news for the environment. But in a narrower sense, it's good for people. And a century ago. One in eight girls born in France was named Marie now that number is one in one hundred demographers love, these kinds of trends, they reveal much more than census data do about. How France is secularize ING and globalizing. But I. Focused on is poised to accept a hefty bailout from the International Monetary Fund. Again, the over indebted country has just sought it's twenty second loan from the F. In a speech while opening a hospital last week, prime minister, Imran Khan, laid the blame on his predecessors. Maimed Pakistan's economic predicament on the previous government. Fingered the amount of debt at the previous government has racked up. Simon cox. Economists emerging marketer. And he pointed out to Pakistanis that fixing this problem would require some hardship in the short term. And he'll so reassured them that Pakistan was in reality of rich country. And the things would get better eventually, and how have done is responded to news of this loan. So there's some dismay some disgruntlement little bit of surprise Iman Khan doing campaigning for the elections last year said he wouldn't turn to the IMF. Although most economists knew that it would be inevitable. He also made large claims for instituting a new kind of welfare state in Pakistan that would take better care of the poor. So that sits at odds with the austerity that Buxton is now going to have to endure, although when should say that the IMF program is attempting to make some provision for the poor. It's certainly been causing a big stir in parliament and the opposition in particular have been accusing the government of selling Pakistan out accusing Pakistan of allowing dictate terms. One particular point of contention is. From this Imran Khan shook up his economic team of the last couple of weeks. Now, the head of the central Bank is a Pakistan national, but also a former official at the IMF. So some critics feel day with this. Right. So let let's roll back a little bit here. How did Pakistan's economy get into such a mess in the first place so Pakistan's been a regular customer? If you like the IMF, and it took a loan twenty thirteen which actually went quite well. And so around twenty sixteen the economy look to have stabilized, but from then on the previous government ran some unsustainable policies in particular the exchange rate to expensive which the competitiveness of puck stan's exports, and they also ran two large budget deficit. So it's too much spending not enough tax collecting, so the big export import Gant, and as a big revenue and expenditure gap for the government the economy, we should say grew pretty well during that pair. But it had these two unsustainable gaps and eventually investors cease to be willing to finance these gaps and the economists after then live with them Enes. So it sounds like some kind of intervention was was needed, and I know with with Pakistan as a as you say regular customer of the I MEF why are so many Pakistanis opposed to to their presence their their their lending. This is a common problem that the IMF aces countries pursue unsustainable. Economic policies. They live beyond their means. Now, the IMF at that point will offer alone to ease this transition, and so the lending will come with conditions attached. So the lending is misused to just by more time. Now, those conditions often quite painful, they often require a cuts in spending increase in taxes often evaluation of the exchange rate, which makes imports more expensive. So none of that is very popular. The question is whether if the I'm wasn't there with the situation even worse and typically answer's yes. Well, it can't be the case that can only turn to the IMF for money or they're not other lenders. Yes. So what sort of different this time? If you like is there an array of other lenders that the Pakistani authorities have leaned on Saudi Arabia has given quite a lot of money and also allowed Pakistan to defer payments on oil, the United Arab Emirates has stepped in and also China, of course, and for while the government sought a could make do with these friends they wouldn't have to deal with the F as well. But the money came short, basically, fills about half the gap, and if I had to turn to the IMF the other half, and how likely is it then on this sort of twenty second go round as Pakistan to actually stick to what the suggests this time around. So it's somewhat unlikely. No one particular to cut Pakistan off, you know, it's a country. That's in a very unstable geopolitical region is the country that has also of its own internal instability issues country of two hundred million people with nuclear weapons, and you know, one of the friends had in the past. Although friend is a strong word is the United States, which has provided an awful lot to economic and military assistance, and so often in previous deals with the F the IMF requested things that Pakistan has then vodka reluctantly partially agreed to and typically the IMF, let's it off at issues waiver said it says the conditions that we attached alone have been waived, and that's become a sort of a game that gets played between the two sides. Now, this is a new government. It's got a good team in place. Good economic team in place. They have their own reputations at stake. So this probably a higher probability this time that in previous occasion. But I'd be surprised if every item in this agreement gets into, but Pakistan doesn't see the IMF as a sort of lender of last resort just lender wondering the degree to which its existence, and this, you know, giving the money, and you can take the advice if you like kind of practice disincentivize is good fiscal discipline. So the IMF often finds itself in a difficult position. It doesn't want to be held responsible for triggering a crisis. It doesn't want to finally cut a country often send it into the abyss won't come think of other examples like Argentina where the became heavily invested in the success of its program and ended up throwing good money after bad an impact fans case it often turns a blind eye to foot-dragging by the authorities or only partial implementation of the conditions. The IMF has asked for besides because it doesn't want to create instability and cause trouble. And you're right. That does create. Inevitable physical game between the two sides. And we'll see how that plays out again with this latest land Buxton? Thank you very much Simon. Thank you very much. My pleasure.