Don’t blame the IMF
THERE is little disagreement that Pakistan’s economy is in a disastrous state. Even the prime minister and Pakistan’s last finance minister have acknowledged this truth, publicly. In fact, the last elected politician to hold the job as finance minister was fired precisely because the economy was in such a mess.
Not only is every key economic indicator in poor shape, all indications suggest that things are going to get much, much worse. Pakistan’s economy is going to slow down to levels not seen for more than a decade, with inflation and unemployment both reaching proportions not seen for a decade. And this is just the beginning.
With the government having just signed onto yet another IMF programme, it is important to emphasise the point, that it is not the IMF which is to blame for Pakistan’s economic condition — not for the past nor for where we are now, and also not for what is about to come. Rest assured, Pakistan’s economy is going to be severely constrained over the next few years, with higher inflation, more unemployment and lower growth, and with a far greater burden on working people than what has been the case for many years. Yet, the IMF is not to be held responsible for the state of Pakistan’s economy.
Rest assured, Pakistan’s economy is going to be severely constrained over the next few years.
The entire responsibility for the wreck that is the Pakistani economy lies squarely on the shoulders of Pakistan’s ruling and propertied elite, both civilian and in uniform, since both have been and continue to hold power in and out of office. There should be no ambiguity about apportioning blame and responsibility here, and one needs to stop blaming the IMF for the mayhem created by this ruling elite.
It is not the IMF which has brought Pakistan’s economy to its knees, to rock bottom, not the IMF which has forced Pakistan to beg for money from supposedly friendly countries, and certainly not the IMF which has made the government of Pakistan finally run to the IMF for loans. The ruling elite, those who hold office and those who hold the strings of those who hold office, are all responsible for managing the economy the way they have over the last few years and over the last decades. This truth can be clearly explained by one simple economic policy measure and non-measure.
From the Musharraf military dictatorship, to the elected governments of Benazir Bhutto, Nawaz Sharif and Asif Zardari, and now to the Imran Khan government, all have gone to the IMF seeking a ‘bailout’ and assistance to stop the country’s deteriorating economic condition.
Yet all these governments, along with their allies and vested interests, have been the ones to have caused a situation where they have been forced to go to the IMF in the first place. They only need the IMF because they fail and refuse to undertake economic reforms since these would hurt their own interests. One key indicator regarding the state of the economy is that of fiscal deficit, that of having greater, unaffordable expenditure and lower revenue or having insufficient money to spend.
If a government is not going to tax its rich, it will always be short of money to spend, no matter how well intentioned and well meaning its social welfare programmes may be. If it has high and increasing defence costs and has to pay back interest on loans taken to pay for defence and other expenditures, it will always have a shortfall of money because it refuses to tax the rich.
This is a circulatory argument: With no taxes on the rich and the elite, with the particularity of Pakistan’s political economy based on essential defence expenditures, and with a shortfall of revenue, there will only be more borrowing, more debt, and so on. The beginning and end of the problem and its solution is simply this: tax the Pakistani elite and the rich. What has the IMF got to do with this gross negligence and failure of Pakistan’s ruling elite? Because the government refuses to raise resources, it has to borrow from the IMF. The IMF is not responsible for the budget deficit ending up near 7.5 per cent of GDP this year.
It must be remembered that it is not the IMF which has come begging to the government of Imran Khan to borrow a pittance ie $6 billion; it is, in fact, the numerous governments of Pakistan which have gone begging for money.
This is simply because we do not raise enough resources — taxes — to be able to spend effectively, whether it is defence or development. If sufficient revenue were raised, there would be no need to beg for money, but in a country where every polio campaign, social welfare measure and women’s support programme are funded by one donor or the other, only because the ruling elite refuses to tax itself, going to the IMF becomes inevitable. But don’t blame the IMF for this.
Moreover, as a lender, the IMF is fully entitled to raise supposedly harsh conditionalities, only because it wants to ensure that its loans are returned, with interest. Banks, and even individuals, don’t lend unless they expect and get assurances that their money will be returned, and need to know about a business plan. As does the IMF, and it is fully entitled to do so. If you don’t like their conditionality, don’t borrow from them. Don’t blame the IMF for its stringent demands.
Since the government has signed an agreement with the IMF, and as the economy deteriorates noticeably over the next two to three years, we can expect those in office and the rest of the elite to blame the IMF for Pakistan’s economic disaster. Yet it is not the IMF that is to be held responsible, but our own elite, elected, unelected, and those who continue to lead Pakistan down the IMF path, yet again. Accountability must begin and end with our elite, not with the IMF.
The writer is a political economist.
Published in Dawn, May 18th, 2019