PAKISTAN clearly lacks a suitable paradigm to achieve national progress. Having taken 19 IMF loans since 1958 to overcome perennial foreign exchange (FX) crises, IMF-backed, supposedly home-grown, reform plans have been its de facto paradigm.
Since FX crises triggered each loan, the logical main criterion for crafting IMF reforms should be their ability to sustainably, significantly and speedily fix FX problems without harming other critical economic aims. Measures directly increasing FX supply (eg, exports and remittances increases) and decreasing demand (eg, unnecessary imports and volatile foreign portfolio flows cuts) should be central to reforms.
Oddly, one finds no such strategic, foremost focus in the 2013 IMF reforms plan on FX problems. Rather, it contains an unrealistic, non-strategic desire to fix almost every ill in the economy in three years based on discredited neoliberal ideas without linking the targeted reforms to FX problems. Expectedly, these plans have not solved the perennial FX crises.
Recent FX increases are all owed to non-durable borrowings, asset sales and falling oil prices and experts predict another FX crisis and IMF loan by 2018. Overall, despite adopting umpteen IMF reforms plans over the decades, Pakistan has achieved neither FX reserves stability nor a fair and high-revenue tax system to-date.
Since rather than aggressively increasing growth to overcome the FX crisis, IMF plans defensively reduce growth to do so, reforms have impeded long-term growth too. Thus, not just on progressive concerns like poverty and equality, IMF reforms have failed even on mainstream economic criteria. All this reflects poor implementation and weak reform designs. Without major design changes, future IMF reforms too will harm Pakistan.
IMF reforms have failed even on mainstream economic criteria.
Meanwhile, various governments have adopted their own development strategies too, like the PML-N’s Vision 2025. However, these have remained dreams as IMF reforms have prevailed. Like the latter, they have lacked a strategic lens which matches Pakistan’s internal strengths with the contours of the global economy to identify a suitable development niche and paradigm for it, as done by many countries.
Small neighbours of developed countries often become free-market offshore financial centres to lure their capital. Some states join rich regional blocs to expand markets. Some thrive by exporting fortuitously present natural resources. Powerful states often become global or regional hegemons to exploit others’ economic resources.
Some fringe states even become transnational criminal hubs. These options are all irrelevant for us, leaving two main options to consider. We could emulate export-oriented developmental states like the Asian Tigers. Even this is largely infeasible since the global economy is saturated with Tigers. Pakistan cannot compete. But it must increase exports enough to avoid FX crises and IMF faulty reforms. CPEC can help in this regard.
The last option is where countries use their large populations and internal markets as drivers of development. Pakistan possesses a large population but not a large internal market given huge poverty. Thus, the most appropriate paradigm for it is increasing the capacities and incomes and hence buying powers of the poor through relevant programmes and policies. This will expand domestic demand and market, production, taxes, jobs and again people’s incomes under a continuous virtuous circle.
Hence, poverty reduction would constitute not a residual welfare aim to help the poor, but a creative national development strategy. This conscious main focus on the poor would go beyond pro-poor growth and represent poor-led progress.
This poor-focused aim would serve as the criterion for developing the details of different state strategies such that they help in achieving poor-led progress and long-term fiscal and external balances. Fiscal policies would increase poor people’s capacities, avoid regressive taxes.
Governance would emphasise devolved and responsive local bodies. Land reforms would occur and professionalisation of boards and management and employee-owned, labour-intensive firms chasing normal, not super, profits would replace crony-capitalism-style privatisation. External flows strategies will insulate Pakistan from frequent global boom-busts cycles. This would be a radical departure from IMF reforms whose starting points are non-people focused concepts like privatisation, deregulation etc. pursued without a strategic people-focused aim to inform their suitability.
The biggest challenge to realising this very leftist vision is the fact that we are stuck presently with conservative and centrist political parties unlikely to implement it. This challenge can be overcome by progressive forces jointly developing a detailed and compelling poor-led development vision and marketing it aggressively at national and grass-roots levels. This will help the emergence of progressive parties and put pressure on current ones to at least implement parts of it.
The writer is a development and political economist.
Published in Dawn, December 28th, 2015