PAKISTAN’S latest IMF borrowing arrangement has generated a fair degree of public comment and discussion. Unfortunately, most of the debate has taken place outside parliament, and almost all of it after the government had already signed up to programme conditionality.

The good news, of sorts, is that the IMF programme has fairly limited ambitions. It mainly aims to achieve macroeconomic stabilisation, while promoting a very modest structural reform agenda. While its conditionality does affect wide segments of society (unfortunately not the ones it should have been targeting), the programme does not represent an economic development strategy for the country per se. That can still be — and needs to be — debated.

While IMF policies have generally been viewed with suspicion, even rejected outright in Pakistan, no robust, credible analytical framework has been used to suggest an alternative path — to the best of my knowledge — for extricating the economy from its stagnation, and “resuscitating” development. Hence, this is as good a time as any for different sections of civil society and policymakers to thrash out a common ground on the way forward for reforming the economy as well as revamping the economic compact in a more inclusive and participatory manner.

An attempt was made in 2008 in this direction, when the government constituted a ‘panel of economists’ under the aegis of the Planning Commission to formulate a path of “adjustment with a human face”. While it predominantly consisted of economists of a ‘Keynesian’ persuasion, it did have representation of the neo-liberal viewpoint as well, and in the end produced a consensus document.

However, that document essentially represented a narrow consensus amongst 18 Pakistanis! Another attempt was made in 2011 by the Pakistan Business Council (PBC) to bring political parties around to acceptance of a “minimum common agenda” for the economy, but it too suffered from a lack of wider representation from trade unions, unorganised labour, the salaried middle class, women’s rights groups, farm workers, small businesses, academics etc.

In the wider context, where concerns abound about the pernicious nature of global capitalism, its motivations, and its many instruments of power and influence, there is a dire need for debate between different segments of society and different viewpoints on the way forward in terms of the nature of representation and participation in the economy, and the just distribution of the pain of failure and the rewards of success in economic endeavour.

Specific to the current IMF arrangement, for all the criticism — including from myself — of the programme design, it is important to understand the Fund’s compulsions.

First and foremost, Pakistan’s weak credibility and poor track record in implementing previous programmes constrained the Fund into designing the loan covenants in such a way that sought front-loaded ‘action’ rather than provide large up-front disbursement. However, given the severe limitations imposed by the political economy context, where even limited moves towards serious reform, other than price adjustments — which hit the poor the most, have been stymied by the lack of a reform constituency both within and outside of parliament, the programme is ‘reform-lite’.

The defensive lending nature of this programme, in the face of large repayments due to the Fund in the current year and next, also reinforced the parsimonious quantum of lending — as must have the grumbling on the executive board about generous ‘Pakistan treatment’ in the 2008 programme.

Given these realities, the Fund prepared the current programme with the following parameters:

• The use of the Extended Fund Facility instrument instead of a Stand-By Arrangement;

• Relatively low access to Fund resources with evenly spread-out disbursements over a three-year period (the almost complete opposite of the 2008 programme);

• Some front-loading of reform measures via ‘prior actions’;

• A large emphasis on building of forex reserves (and engineering a greater de facto adjustment of the exchange rate as a consequence);

• Achieving a higher fiscal consolidation in the first year (2pc of GDP) than in the past;

• Tolerating a relatively loose monetary policy to counteract the contractionary fiscal policy;

In overall terms, by virtue of its design as well as the issues it seeks to tackle, the IMF programme is, by definition, going to be deflationary. In the IMF’s scheme of things, achieving macroeconomic stability is necessary — though not sufficient — for a return to conditions supportive of economic growth. However, as I have written in the past, and other eminent commentators have pointed out more recently, stabilisation and growth do not have to be mutually exclusive.

Whatever the merits and demerits of stabilisation, the programme design could have been vastly improved in three critical areas:

• How the intended fiscal consolidation is being achieved

• The distribution of the ‘burden of adjustment’ across society (and inter-temporally)

• Sustainability of the reform drive

While the first two points are self-explanatory, and have been commented upon, the third point is extremely important as well and deserves explanation. Sustainability of a reform drive depends crucially on the judicious use of political capital. If too much political capital is used up in the initial part of programme implementation, or wasted on relatively ‘lower-order’ priorities — as in the case of the hefty electricity tariff increases announced by the government — significant reform objectives sequenced for later, such as tax broadening, can be compromised.

This is exactly what we successfully averted in our discussions with the Fund in 2008 and 2009 — arguing for staggering the electricity tariff increases to allow for improvements in governance of the power sector to kick in first, and for using the government’s political capital on the introduction of the VAT — a “higher” reform objective in the long run. (That we didn’t succeed in either is a separate story!)

The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.