FeaturedNationalVOLUME 19 ISSUE # 19

Time for Pakistan to look beyond IMF

All talk about the economy in Pakistan begins with the IMF and ends with it. All discussions revolve around how much loan we require from it and what conditions the lender imposes on us. The people of Pakistan and their well-being do not figure in these discussions. All the news is about the IMF demanding a raise in taxes and utility charges and there is no mention about IMF’s concern over the devastating effect additional taxation measures will have on the lives of poverty-stricken people.

Curiously, while the IMF insists on further raising petrol and electricity prices, one seldom hears about the international lender demanding an end to the royal perks and privileges enjoyed by the ruling classes and the rampant corruption at various levels of the government which makes a mockery of the development budget running into billions. The IMF talks of withdrawing subsidies to farmers, it does not insist on an end to the subsidies to higher bureaucracy in the form of free petrol, free electricity and free gas and luxurious transport vehicles. Has the IMF ever asked the government why power rates in Pakistan are so high as compared to those prevailing in the regional states? Has the IMF ever asked for a probe into the capacity payment agreements with IPPs signed by various governments?

The other buzz word in the national debate on the economy is stabilisation. All the emphasis is on stability, not on growth. Stabilisation means keeping interest rates high, raising revenue through higher taxes so as the government can meet its debt servicing obligations. It is clear that the people of Pakistan rank very low in the IMF’s list of priorities. The IMF cares too much about economic growth in Pakistan. Stabilisation policies entail economic hardships for the people of Pakistan who have never been able to benefit from the billions the IMF pumps into the economy. On the contrary, every new IMF programme creates a new round of economic woes in the form of higher taxes and an increase in the prices of essential items of daily use.

Normally, the government should first think of the good of the people but there is no sign of it. The main topic that should come under discussion between IMF and government officials should be how to aim at sustainable growth through enhanced exports and increased foreign investment. But all efforts are centred on reducing the twin deficits — current account and fiscal. All focus on securing IMF loans, not on developing a strategy to get out of the debt trap.

As it is, Pakistan’s debt burden has become unsustainable. Needless to say, it is plain dumb to take more loans to pay back old loans because this approach has not worked in the past nor will it do in the future. We have the examples of Argentina, Egypt and Ethiopia before us. In these countries too, the IMF imposed conditions linked to raising taxes, abolishing subsidies, maintaining market-determined exchange rates and privatization. Consequently, the economy shrank and these countries could not get out of their economic troubles despite long years of dealings with the IMF.

The IMF is a lender and all it is interested in is getting back its capital with interest. It is for the government of Pakistan to keep the national interest foremost in its calculations and adopt relevant policies for this purpose. It is time we, over and above our dealings with the IMF, should re-strategize sustainable economic growth by addressing structural issues and undertaking long overdue political, economic, and social reforms. We need to mobilise our indigenous resources through the adoption of policies designed to encourage people to save so as to increase investment and savings rates in the country. Since more savings and more investment alone can lift us from the present level of economic slump and decline.

In this context it is relevant to point out here that Pakistan’s savings rate is deplorably low as compared to Bangladesh and India. In 2022, India’s savings rate was 29.1 per cent, Bangladesh’s was 25.2pc and that of Pakistan barely 4pc. From 2003 to 2022, India’s average was 31.1pc, Bangladesh’s 22.9pc and Pakistan’s a dismal 8.6pc. Similarly, in 2023, Bangladesh’s investment-to-GDP ratio was 31pc compared to Pakistan’s 13.6pc. India’s 34pc.

There is a dire need for a paradigm shift in our economic policies. Pakistan needs to focus more on fostering investments and technology transfer to boost growth and income. Thus, while dealing with the IMF, Pakistan must develop a comprehensive and coherent economic revival plan for long-term stability. Foreign private investors should be the primary focus of this plan. Lately, efforts have been made to attract FDI through initiatives like the Special Investment Facilitation Council. The Council is doing good work within the limits of its given mandate but in the larger context we must create an investment friendly climate. To this end we must review the policies which are a hurdle in the ease of doing business.