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THE GIST of Editorial for UPSC Exams : 20 APRIL 2019 (Either way, the news is bad (The Hindu)

Either way, the news is bad (The Hindu)

Mains Paper 4: International Relations
Prelims level: IMF
Mains level: Important international organisations and their role

Context

Given its poor state of economy, Pakistan is in the process of making a deal with the International Monetary Fund (IMF).

Falling of Pakistan's economy

Pakistan’s economy has been ruined in the last 8 months, and almost every indicator has deteriorated substantially.
It is marked since Imran Khan became Prime Minister and his party, the Pakistan Tehreek-e-Insaf (PTI), formed the government.
Inflation, at 9.4%, is at its highest level in five-and-a-half years and is likely to rise to double digits for the months ahead.
The rupee continues to lose value every other day, which adds to further inflation especially with the oil price on the way up.
The fiscal deficit is about to hit more than 6% of GDP.
Even a cut in development expenditure will not stop this trend, as defence spending and interest payments continue to rise.
Pakistan’s exports, stuck at around $26 bn for years, despite the 35% devaluation of the rupee over one year, have barely recovered.
Besides, the government owes power producing companies huge amounts of money and the debt continues to accumulate.
Interest rates are also going up making the cost of business even more uncompetitive.
The GDP grew by 5.8% in the last fiscal year, the highest in 13 years.
But the State Bank of Pakistan recently lowered the expectations of GDP growth for the current fiscal year to an 8-year low, to around 3.5%.
This was reduced further by the IMF and the World Bank to a dismal 2.9% for the current fiscal year.
It is expected to fall further over the next 3 years.
By all accounts, Pakistan’s economy is in a dismal state.

Key reasons

A major reason for the worrying state of economy is the mismanagement and incompetence of the government.
It was almost certain that whichever party would have won the elections of July 2018, it would ask the IMF for a major structural adjustment loan.
But Mr. Khan's said he would rather commit suicide than go to the IMF.
Mr. Khan’s strategy was to run to a few of Pakistan’s friends asking for money, and to not go to IMF.
A non-IMF policy and programme was preferred as a better option in August, 2018.
The newly-elected government thus did not do what it should have done.
But the incompetence of the government did not allow for reforms to be undertaken, and has only made matters far worse.
By not submitting to the IMF then, they now have no option but to submit almost a year later.

The recent happening

Asad Umar, Finance Minister of Pakistan, attended the Spring meetings of the International Monetary Fund (IMF) and the World Bank in Washington.
He was unable to finalise an IMF deal when he was in Washington.
Also, due to the poor performance in running the economy, he has been demoted to be the petroleum minister.
Dr. Abdul Hafeez Sheikh, a former Adviser under General Musharraf, has been named the adviser on finance.
At a moment when Pakistan’s economy is facing a major crisis, it also has no finance minister now.
Whoever will take the new job will have to face challenges they may neither be prepared for nor experienced enough to deal with.

What next?

The IMF deal is now a certainty given the poor state of economy.
Failing at alternatives to revive its economy, Pakistan has to find ways to convince the IMF now that Pakistan needs it.
So although the finance minister has been replaced, there is probably no need for a replacement.
It's so because when the IMF implements its strict conditionalities and adjustment programme the finance minister becomes redundant.
The country is supposedly to ‘agree’ to the terms.
The finance minister is then simply the bearer, and the new finance Adviser will fit this role.

Way forward

If finalised, this will be the 13th IMF rescue package for Pakistan’s governments in less than four decades.
One of the stumbling blocks to the deal this time has been the IMF’s insistence that Pakistan reveal the financial deals made with China. It demands details including financial loans, as well as the $60 billion China-Pakistan Economic Corridor.
The new IMF programme is the biggest Pakistan is expecting to receive, likely to be between $6-$10 bn.
However, this is going to make things far worse for all Pakistanis.
This is true especially for the working people already dealing with prospects of a marked economic slowdown and high inflation.
Defence spending will remain a matter of ‘national security’ and not be touched.
But the IMF will further cut the minuscule development expenditure left.
It will ensure austerity, stabilisation and will cut the growth rate further.
It will insist on further devaluation, causing greater inflation, and will insist on raising utility prices.
In every respect, the people of Pakistan will face the prospects of fewer jobs, and rising prices.
They will have to cope up with an economy which is now the worst performer in all of South Asia.
If Pakistan takes the IMF loan or not, it is sure to be amidst troubles and challenges for some time.

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Prelims Questions:

Q.1) Consider the following statements about Microbial fuel cells (MFCs):
1. These cells rely on bacteria to generate an electrical current.
2. Powered by living microorganisms with clean and sustainable features; they can generate electricity from broad range of organic substrates under natural conditions.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C