The wrong way out


M. Ziauddin

That Pakistan’s economy is in a dire strait is beyond an iota of doubt. The way out? In the opinion of most of our experts including independent and official economists a new IMF stabilization programme would work as a sort of panacea for all our current economic ills.
But that is the easiest way out. And every time we have taken this easy route to get out of our economic troubles we have only ended up in a direr strait.
The last three-year Extended Fund Facility (EFF) program of the IMF that we completed with innumerable wavers did nothing but add to our economic woes.
According to one expert the program squeezed more from poverty stricken people of the country through inequitable and corrupt taxation system to meet the IMF fiscal targets and resorted to massive international borrowings to shore up the external buffers (reserves).
The programme failed to create the employment generating and export oriented growth in spite of the massive decline in global oil prices. The very fact that the Fund had allowed the government as many as 16 waivers during the course of its program was a manifestation of admission on the part of both the donor and the recipient that the conditionalities with regard to these waivers were economically unrealistic.
One also did not hear any protest from the Fund for not delivering on the privatization conditionality. And the Fund also did not feel obliged to explain why it had allowed the government to remove from the budget books the burden of the energy related circular debt. This concession had allowed the government to achieve a near ideal budgetary deficit figure for the successive years as opposed to the over 8% that the previous government had shown for 2013 when the circular debt had amounted to no more than Rs. 450 billion.
The matter of greater concern was that the last IMF programme had ended with a significant decline in the country’s export earnings. What in fact had afflicted the export sector was the government’s consistent refusal to release the refunds of billions to the exporters causing huge liquidity problems for them. The power load-shedding also seemed to have caused a serious disruption in the productive sector causing the exporters to lose markets to regional competitors. There were reports that many textile mills had closed down because of liquidity problems, energy shortages and also because they had lost orders to regional competitors.
Both the Fund and Pakistan had seemed highly satisfied with the accumulation of foreign exchange reserves equivalent to four weeks of import bill. But most of this amount had comprised commercial loans carrying heavy interest rates.
Since around 1958 the IMF has entered into 16 structural adjustment programmes with Pakistan. But all of these had ended up prematurely except for two. The one (Extended Credit Facility/PRGF) that was signed on June 12, 2001 was completed ‘successfully’ on May 12, 2004 because it was front-loaded (disbursement of loan to be made after the completion of the programme) and the other signed on September 4, 2013 was completed ‘successfully’ in September, 2016 with as many as 16 wavers.
The IMF as usual had proposed through all these programmes a list of improvements it would like to induce successive governments in Islamabad to adopt. These improvements have been focusing on seemingly sensible reforms such as macroeconomic stability through a reduction in the size of the government sector, flexible exchange rate, capital account liberalization, privatization, improvements in the efficiency of public service provision and introduction of anti-corruption laws.
However, since these reforms were to be implemented by the same political and bureaucratic leadership of the recipient country that had in the first place mismanaged the economy, most of the time these proposed policies were either not adopted, nor implemented or implemented only half-heartedly or in the name only.
A former civil servant, Mr. Saeed Qureishi who has served at the highest economic, financial and planning levels, in his book Governance Deficit—A case study of Pakistan recounting the history of Pakistan and IMF collaboration said that in the late eighties and much of nineties Pakistan had to approach IMF for assistance several times. The conditionalities imposed on the state were hard and all embracing.
The credit under the Enhanced Structural Adjustment Facility provided by IMF in 1997, had a policy matrix that ran into 13 pages, stipulating 124 policy actions, each of which had a specific time-frame. Out of 124 reform actions only one was slated for 2001 (the total elimination of subsidy on wheat). All other conditions had to be met by 2000.
“This was not the first time that elaborate conditionalities were agreed with IMF. Back in 1988, the policy framework paper had 108 conditionalities, covering, revenue raising measures, expenditure control, exchange rate system, external debt management, prices of crop output, cost recovery of irrigation from the farmers, deregulation of trade and industry, improvement in public enterprises, import policy, energy, institutional frame work, resource mobilization, and demand management i.e. consumer prices of petroleum, gas, electricity, coal, public sector investment program including infrastructure, transportation, health sector reforms and education sector reforms. The time schedule for implementation was from July 88 to June 1991. Everything had to be done during this period.
“One can envisage two arguments against categorizing this phenomenon as loss of governance space. First, that these are agreements between a lender and a borrower. The borrower need not accept the conditions, if the loan is not taken. Second, the policies prescribed by these agencies are conducive to long term stability of the economy and therefore in the interest of the country.
“In reality, the alternative does not exist. These arrangements come in the shadow of a crisis that enables the multilateral institutions to impose harsh conditions. Secondly, the issue is not how good these policies are for the economy but whether economic policy is a national enterprise, or an imported service.
Outsourcing it undermines the government’s steering function and reduces it to an implementation agency. Lacking national ownership, it alienates the stakeholders. That is one of the reasons for poor implementation.”
While it is not in the long term economic interests of Pakistan to seek an IMF programme, a number of experts, have launched a surreptitious propaganda claiming that the PMLN government and before it the Zardari led PPP government had deliberately destroyed the country’s economy in cohorts with Pakistan’s enemies to force the country go begging to the US dominated multilateral aid agencies like the IMF, World Bank and the Asian Development Bank which, these conspiracy theorists claim wouldask Pakistan to give up its nuclear devices in return for their badly needed assistance.
Conveniently, these self-serving experts ignored mentioning the game-changer in the offing—the China-Pakistan Economic Corridor—while promoting their conspiracy theories. In the first place the $60 billion CPEC project is already a reality. By the end of the current fiscal year, the project is expected to start yielding results while still in progress, rendering an IMF programme totally unnecessary.
So, if we could hold our breath for another 12 months or so without rushing to the IMF, it is more than likely that we would, on our own start getting out of the strait in which we are trapped today.
And there is no way anybody can force Pakistan or blackmail the country into giving up its nuclear devices. In its own strategic interests China has always been highly supportive of our nuclear programme.

Therefore, those countries that are not comfortable with our nuclear capability would first like to know how China would react to any hostile move on their part to take out our nuclear devices.

Share this post

    scroll to top