ISLAMABAD, Nov 28: Conditions attached to the $7.6 billion International Monetary Fund loan are expected to cause up to three million job cuts in different sectors and push another 5.6 million to 7.5 million Pakistanis into poverty over the next two years.
This was stated by the chief economist of the Royal Bank of Scotland (RBS), Mr Sakib Shirani, at a discussion on the IMF loan organised here on Friday by the Centre for Research and Security Studies (CRSS). A number of economists and industrialists attended the discussion.
However, Mr Shirani, who was part of the talks held in Dubai between Pakistani and IMF officials, said the government was left with no option but to seek the IMF ‘standby arrangements’.
The topic of the discussion was “IMF: pain or panacea”.
When asked about the immediate fallout of the conditions which was aimed at slowing down the import-led economic growth, Mr Shirani said that two to three million people would lose their jobs in various sectors, including fertiliser, manufacturing and services.
He said the GDP growth was expected to slow down to 3.4 per cent this year. “Some 5.6 to 7.5 million people will be added to the existing number of poor”.
He blamed the previous government for introducing the import-led and less diversified economic growth in order to show that Pakistan was growing fast. If the present government succeeds in achieving quarter-wise targets given by the IMF, some improvement could be seen after 2010.
“There can be no two ways about stabilisation when one’s external and fiscal deficits are completely out of sync.”
However, Mr Sherani said the standby arrangements would help to stabilise the economy and revive the confidence of investors.
Abid Hassan, a former adviser to the World Bank in Washington, said that Pakistan’s imports last year shot up to $35 billion and exports were only $20 billion, leaving a gap of $15 billion in the current account. The fiscal deficit was not at all sustainable, he added.
He said that economies could not be built on “wishful thinking” and the IMF was the last resort for Pakistan. He warned that if sincere efforts were not made, the lack of strong institutions in the country could again fail the IMF programme. He said he would not trust the bureaucracy and its commitments if one had to peep into the experiences the country had had with the Breton Wood institution.
Mr Hassan said Pakistan had entered into several IMF programmes in the past, but only one had been completed during the Pervez Musharraf regime. “The country has a reputation for falling short on commitments to the IMF.”
CRSS executive director Dr Farrukh Saleem said Pakistan was facing three problems — trust deficit, budgetary deficit — the government raises Rs1.5 trillion as revenue and spends Rs2 trillion — and trade deficit — the country imports goods worth $35 billion and exports goods worth $20 billion. “Pakistan is now like a patient who is suffering from a severe heart attack and the only doctor around is the IMF.”
He said that over the past 64 years the IMF had been following a standard prescription: increase taxation, reduce government expenditure and devalue currency. But, he said, a large majority of the IMF recipients, including Argentina, Bolivia, Brazil, Chile, El Salvador, Ethiopia, Haiti, Indonesia, Kenya, Liberia, Malawi, Pakistan, Paraguay, Philippines, Somalia, Sudan, Syria, Thailand and Congo, had failed to implement these measures.
The panellists were of the view that an increase in taxation would mean a further slowdown in the economy which would mean an increase in unemployment. “Same thing is with the rate of interest. The high cost of capital leads to closure of a number of industrial units, meaning more unemployment.”
