Crisis has been postponed, economic emergency lingers in the shadows. We are witnessing a brief alleviation of our economic emergency, thanks to the efforts of military diplomacy. While this intervention has managed to suppress some of the symptoms temporarily, it is crucial to acknowledge that the root causes of the crisis remain unaddressed. Merely four weeks ago, our currency was plummeting uncontrollably, the State Bank of Pakistan was grappling with reserves that could barely sustain three weeks of imports, and investors were hastily divesting from Pakistan’s international bonds. However, an unexpected lifeline arrived in the form of a Stand-By Agreement (SBA) with the IMF.
November’s looming review under the SBA holds paramount importance. The government is under a stringent obligation to generate a primary budget surplus. Firm commitment to maintaining an exchange rate determined by the market is imperative. Equally vital is the government’s unwavering dedication to implementing reforms, particularly within the energy sector. Furthermore, prioritizing climate resilience and fostering an enhanced business climate are indispensable tasks. Let it be unequivocally stated that these conditions must be met by the government.
The most recent IMF report states: “Pakistan’s economic challenges are complex and multifaceted, and risks are exceptionally high.” In order for our government to successfully meet IMF conditions, two fundamental elements come into play: intention and capability. Intention refers to the government’s strong desire and commitment to accomplish a specific objective. It involves outlining strategies, and demonstrating a genuine dedication to achieving the desired outcome. Intentions serve as the driving force behind governmental actions and policies, providing a sense of purpose and direction.
Capability refers to the government’s ability to effectively implement and execute the necessary measures to accomplish the desired goal. It encompasses various factors such as resources, expertise, infrastructure, and institutional capacity. Governments must possess the necessary means and capacity to translate their intentions into tangible actions and outcomes.
Let us assume that our government is well-intentioned. However, it raises the question: does the government possess the required expertise and institutional capacity? Moreover, does it have the necessary means and ability to effectively translate its intentions into tangible actions and produce desired outcomes?
Upon reviewing the past fifty years of our financial history, it becomes apparent that no Pakistani government, aside from the 2016 program that necessitated over a dozen waivers, has managed to successfully conclude an IMF program. This recurring pattern raises concerns regarding our governments’ capacity and its institutional strength in addressing economic challenges. It suggests a lack of essential expertise needed to effectively rectify and stabilize the economy.
To be certain, the upcoming IMF program is going to be extremely challenging, with the downside risks being alarmingly high. The government of Pakistan must proactively undertake three critical measures. First: it is imperative for the government to strategically recruit and harness the expertise of individuals with a profound understanding of economic policies and financial management. Second, the government needs to prioritize evidence-based decision making over politically motivated choices. Third: it is crucial for the government to prioritize strengthening its institutional capacity. Overall, undertaking these three key actions—recruiting expertise, embracing evidence-based decision making, and strengthening institutional capacity—will be instrumental in successfully navigating the challenges of the upcoming IMF program and positioning Pakistan on a path towards sustainable economic progress.
