By Chandeepa Wettasinghe
Both policy makers and citizens must swallow the bitter pills given by the International Monetary Fund (IMF) to reach long-term economic prosperity, former Governor of State Bank of Pakistan (SBP) Ashraf Mahmood Wathra said at an event held to commemorate the 67th anniversary of the Central Bank of Sri Lanka, this week.
He noted that the relationship between the IMF and a country going through an IMF programme is analogous to a doctor-patient relationship.
“Just like a doctor may prescribe a particularly bitter medicine to a sick patient, or recommend a painful surgery as a last resort, so too can the IMF prescribe a stringent series of reforms to rescue an economy from a severe crisis and put it back on the road to a sustained recovery,” he said.
He said that in Pakistan, while economically-bent policy makers had understood this, the common man had not, and that in some extreme cases, the reform conditions the IMF prescribed had been viewed as restrictions on a country’s sovereignty, or as being motivated by geopolitical interests, rather than economic considerations.
Wathra drew many parallels between the economic situations of Pakistan and Sri Lanka before the countries got the IMF packages. Already in Sri Lanka, opposition political parties are attempting to derail the IMF reforms through religious and nationalist agendas. Even politicians in the ruling party in recent times have bashed the IMF with populist rhetoric in order to divert attention from serious economic issues.
“Naturally, it doesn’t make sense for the patient, or a country’s citizens, to resent the entity issuing the well-intended prescription,” Wathra said.
Responding to a question raised by the Central Bank Deputy Governor Dr. Nandalal Weerasinghe he added that it is imperative for politicians to stay committed to the IMF reforms, even if the government changes, although Pakistan, like Sri Lanka, still has no laws to keep the country committed to the path of reforms.
Both Sri Lanka and Pakistan have a history of exiting IMF reform programmes early after receiving two or three tranches of support, as reforms become harder to digest.
Wathra said that Pakistan managed to privatize many state-owned enterprises (SOEs) under the reforms, despite resistance from employees of some SOEs, and also introduced market pricing for electricity—which saved Pakistan nearly 2 percent of gross domestic product worth of electricity subsidies.
Sri Lanka too has to reform some SOEs and divest non-strategic SOEs, as well as introduce cost-reflective pricing mechanisms for fuel and electricity.
Wathra said that these reforms, along with improved performances on other key indicators such as higher government revenue, increased foreign reserves and targeting inflation allowed Pakistan to restore investor confidence and embark on a higher growth path.
However, he warned that the reforms need to be credible.
“Any investor worth his or her salt will only fully commit to ambitious new ventures when he or she is convinced that the government has a long-term vision and that it will diligently follow through on its declared reforms agenda. Mere lip service or half-heartened implementation will not inspire sustained private investment,”
Since this is the first time that a unity government is in power in Sri Lanka, the inexperience and the conflicting ideologies of the composite parties have slowed down reform efforts. Investors have adopted a ‘wait and see’ attitude, resulting in low realized investments over the past