WITH budget preparations in full swing, the IMF has issued an assessment that Pakistan will not require a new programme once the present one ends. In the Fund’s view, the present government has “completed to a large measure the stabilisation agenda” of the present programme. The remarks underline the very narrow objectives of the Fund programme in Pakistan, and are doubtless going to be seized upon by the government as a vindication of its economic legacy as budget time approaches. But it would be a mistake to hang too heavy a hat on the words of the IMF given the manner in which the stabilisation agenda has been implemented, as well as the large gaps in the implementation of structural reforms.

The way the picture is shaping up, it appears that the government’s paralysis on the policy front and its increasing embrace of populist measures in the midst of the growing political crisis that has emerged from the saga of the Panama Papers pose some challenges to the continuation of the reform agenda. Moreover, the failure to actually broaden the tax base or undertake any meaningful structural reforms means that achievements on stabilisation achieved thus far can reverse themselves quickly. Couple this with exports continuing to decline, and any gain on the external account earned largely through the fall in oil prices means vulnerabilities in the external sector remain strong. So far, stability has been earned for the most part by steep cuts in the development budget — reportedly as high as 24pc for the current fiscal year alone. For next year, the cuts are likely to be even larger, given that this is going to be the last full-year budget that the government is about to announce. Meanwhile, defence, debt servicing and current expenditures remain stubbornly stuck to their existing levels.

The macroeconomic picture indeed appears stable at the moment, if we look at nothing beyond the reserves and the fiscal deficit and ignore totally how these have been achieved. But stability is standing on a very narrow pedestal. Given the political uncertainties arising from the Panama Papers crisis, followed by a looming election and debt service outflows set to increase by then, such a pedestal is hardly a sound perch. The Fund itself is taking a limited view because its objectives in the country are quite narrow but the government must avoid this trap. In all likelihood, Pakistan will not be entering a new IMF programme after the current one ends, preferring to leave that decision to the next government after 2018. But this cycle of temporary stabilisations followed by a new IMF programme with every change of government that Pakistan has been a part of for almost a quarter of a century has to be broken if the government wants to claim any economic legacy for itself.

Published in Dawn, May 3rd, 2016