THE latest review of progress under the Extended Fund Facility Pakistan signed in 2013 tells us more about the International Monetary Fund than it does about Pakistan. Despite serious weaknesses in the economy, the Fund is content to pronounce that progress is “encouraging, thanks to strong performance under the programme”. Performance has indeed been strong — but only when viewed with one eye. Reserves have gone up, and the fiscal deficit is being brought down to manageable proportions. At this point, though, the good news ends, even if the Fund has found plenty to spin out of this. Macroeconomic indicators are only the headline items in a country’s economic performance; the real story lies in how these have been achieved, at what cost, and how things are faring beneath the headlines. Falling exports, industry shutting down, collapsing investment, spiralling consumer spending, rising bank profitability even as advances to the private sector shrivel up, are all unhealthy signs for the real stakeholders in Pakistan’s economic health. But for external creditors, the only points of interest are the country’s creditworthiness and its capacity to meet debt-service obligations. And that is the only area in which the Fund has given the government’s economic performance a clean bill of health, because that is the only area that the Fund really cares about.

Pakistan’s case illustrates the dangers of an economic management philosophy whose number one priority is to keep foreign creditors satisfied. Governments, when guided by such a philosophy, will produce absurd actions, such as basking in the approval of international credit rating agencies and multilateral lenders while gnashing their teeth at international NGOs and being suspicious of their motives. The former are pampered stakeholders for our economic managers, and the government serves to please them, while the latter serve only the poor and vulnerable segments of the population who have little voice in policy circles. Pakistan deserves better economic management than this, but looking to the IMF for support in bringing about any meaningful reform is increasingly appearing as an exercise in futility.

There is little evidence that the government has successfully increased recoveries in the power sector or broadened the base of taxation, but the fiscal house can be declared to be in order simply because the deficit is marginally within control. Likewise with the quality of the growth, which is centred heavily on fly-by-night industries such as services and construction, while employment-generating industries continue to languish. But the real challenge — an economy increasingly geared to serve the rich and offload the costs onto the poor — is the product of Pakistan’s own political leadership over the years. The present government is no exception. The Fund review makes clear what to expect in the forthcoming fiscal year: more tariff increases to pay for the inefficiencies of the power sector, heavier taxation on those already within the net, and an anaemic attempt to expand the tax base.

Published in Dawn, July 5th, 2015

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