THE finance minister, Dr Hafeez Shaikh, had barely completed his truncated budget speech that word spread around Islamabad about an imminent approach to the International Monetary Fund for more financing.

In fact, Dr Shaikh hinted as much soon after. Of course, this has not come as a surprise to regular observers of Pakistan.

Economies with such pervasive macroeconomic imbalances such as ours are never far from a visit with the Fund.

Based on how far a number of uncertain expected external inflows (remittances, exports, foreign investment, coalition support funds, etc.) can cover far more certain expected outflows (oil imports and loan repayments) the government will have to return to international lenders in order to plug the growing balance of payments deficit in the coming fiscal year. If the predictions are correct, Pakistan will return to the IMF for the fourth time since the turn of the century (not counting the relief aid received in 2010 following that year’s devastating floods).

This is a pattern we are firmly entrenched in. Here is how it goes. Face to face with the prospect of massive fiscal and/or external account imbalances that threaten to lead the entire (formal) economy down a sinkhole, we run to multilateral lenders who offer us loans against promises that we will implement much-needed economic reforms. We take the money and breathe a sigh of relief and begin implementing (grudgingly and ineffectively) some minor reforms as we draw upon the early tranches of the loan agreement.

After a couple of years of obfuscating and excuse-making we fail to implement the most far-reaching reforms. We pretend to suddenly discover that these reforms are likely to be painful for businesses and the public. Unable or unwilling to implement the politically unpalatable we discontinue the remainder of the loan agreement. Soon repayments start kicking in and the economic imbalances, which had only been pushed under the rug, begin to grow again. As these imbalances begin to bite we are left with no other choice but to return to multilateral lenders for more. Lather, rinse, repeat!

Despite all the howls about begging bowls, imperialism and sovereignty that ring out every time we turn to multilateral lenders, it is inevitable that Pakistan will have to find external financing from somewhere. Low tax collection, high military spending, expensive debt servicing and a large, convoluted subsidy regime are not recipes for fiscal balance. Couple this with the troubled external sector and the long-term economic prospects for the country look pretty dire.

The only way we can stop this cycle is through economic reform. What does that encompass? Dump market distorting tax exemptions, business subsidies and price fixing by the state. Stop picking which sectors of the economy are important and which ones are not; let the market forces of supply and demand sort that out. Reduce import tariffs and introduce genuine competition. Tax agricultural income, improve sales tax collection through the VAT mechanism and expand the tax base. None of this is new. This menu of economic reforms has been around for decades. There is only so much market distortion that an economy can take before it either needs continuous propping up by the state to survive or caves in when the state becomes incapable of doing so.

And after all this time, are there any signs that we may have learned our lesson? Does it look as if our political and business leaders recognise that the policies of subsidies and protections, of SROs have ruinously distorted the economy? Do our military leaders notice how high levels of military spending are choking off fiscal space? It doesn’t appear so.

Businessmen continue to seek special treatment for their respective sectors from the state. It could be tax relief, subsidies for inputs, price floors for their products or finance at below market rates. Hardly anyone of them, it seems, is bothered with efficiency, competitiveness, innovation, meritocracy and entrepreneurship. This is harder to clearly see these days through the billowing smoke of the energy and security crises. While it is a legitimate criticism of the state that it is not doing enough to tackle those problems, let’s not forget that the Pakistani businessman has been getting state handouts for decades and keeps asking for more. On the other hand, the entire political class displays an astonishingly unsophisticated understanding of the economy. The current government seems to think that continuing to borrow more from financial markets and printing more money are perfectly reasonable economic policy. Apparently hoping that inward remittances will continue to grow, that foreign investment will come regardless of the security situation and that oil prices will not spike too much are also legitimate policy positions.

Opposition parties, for their part, are convinced that once they rise to power and miraculously wipe out corruption and the Americans leave Afghanistan, all will be well again in the land of the pure. Ask them how they will tackle the SRO culture and they’ll pivot to America and corruption. Ask them about the energy crisis and they’ll talk about corruption. Ask them how they’ll get rid of corruption and they’ll respond with silly platitudes. What they are definitely not interested in talking about is economic reform.

And the military seems uninterested in how its outsized slice of the federal budget is squeezing the state’s fiscal space. It is unwilling to listen to how its various corporate interests are cannibalizing private Pakistani businesses.

So, yes, we are going back to the Fund for some much-needed help … sooner or later.

The writer is an Islamabad-based policy analyst.

asifsaeedmemon@gmail.com Twitter: @asifsaeedmemon

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