AN IMF mission is here to hold discussions on the second and final review of its short-term $3 billion rescue package that has helped Pakistan shore up its foreign excha­nge reserves and avert a sovereign default.

The review will most likely be successfully completed, leading to a staff-level agreement that would facilitate the disbursement of a $1.2bn tranche in the coming weeks, a vital injection for Pakistan’s economy.

Meanwhile, Finance Minister Muhammad Aurangzeb has already hinted at starting discussions with the lender about a bigger and longer successor bailout.

“We would at least kick-start the process and get this going. Let us see how they respond,” he said last week in his first formal media interaction after assuming the charge of the finance ministry. “Further negotiations on the fresh programme will be taken forward on the sidelines of the spring meetings of the IMF and the World Bank in April in Washington.”

A pattern of reliance on IMF bailouts, coupled with a lack of substantial reforms, has led to a scenario where Pakistan is on the brink and masses are reeling from economic pain

While the government has not officially stated the size or duration of the funding it plans to seek from the Fund, the lender has said it will formulate a medium-term programme if Islamabad applies for one.

“We look forward to engaging with the new government to complete the second review under the current stand-by arrangement and, should the government request, support the formulation of a new medium-term economic programme,” an IMF spokesperson told Reuters earlier this month.

If approved, the loan programme would be Pakistan’s 24th engagement with the global lender. The country has already earned the unenviable distinction of being the most frequent and the fourth largest customer of the IMF.

The question is: has Pakistan learnt any lessons from its previous 23 arrangements with the IMF? Apart from one, all the programmes were terminated midway due to tough conditions. Never has Pakistan met the goals of any package.

This pattern of reliance on IMF bailouts, coupled with a lack of substantial structural, governance, financial and economic reforms, has precipitated a scenario where Pakistan teeters on the edge of fiscal instability, with the masses groaning under huge economic pain.

Another IMF programme is most likely to increase this pain. Yet, most experts argue that Pakistan’s current situation leaves little room for alternative strategies, with other multilateral and bilateral creditors keenly watching the outcome of these negotiations.

‘Designed for stabilisation, not growth’

“It’s given that a sizable, extended IMF programme is imperative for Pakistan. We have to appreciate, however, that the IMF prescriptions are [always] designed for macroeconomic stabilisation, not for growth. Therefore, there will be economic pain and anaemic growth in the medium term,” argues Zafar Masud, president and CEO of the Bank of Punjab.

Many economic analysts believe that the IMF’s financial support should be sought only to overcome crises like the short-term balance of payment troubles caused by exogenous or endogenous shocks and to create breathing space to implement policies that would restore economic stability and growth.

In Pakistan’s case, it has always been the opposite. Years of fiscal profligacy and the ruler’s obsession with creating import-intensive, consumption-led growth without correcting deep-seated structural economic and governance flaws take the country to the IMF every few years.

Many have predicted that like previous IMF programmes, the stabilisation goals of the new package would also compel the government to take tough steps that would lead to higher inflation, more unemployment and currency devaluation, slowing down growth, at least in the short run.

“Unfortunately, we have come at a crossroads where it is not a question of pain or no pain; it’s just when and how we decide [or are forced] to take it. There are no easy paths but choices that are less distressing for the public. Nevertheless, our ultimate objective should be to achieve sustainable economic growth, which is the only proven route towards progress and poverty alleviation,” Mr Masud insists.

Others, like former state minister for finance Aisha Ghaus Pasha, agree. “Our problems are enormous. We have been tweaking the economy here and there when under pressure to tackle these problems temporarily, but do not fix its structural defects,” she says.

“The IMF programmes do provide some valuable support by providing short-term space to stop further economic slide, but lasting solutions can only come out of homegrown economic strategies and deep reforms,” Ms Pasha observes.

‘Commitment to implementation’

The new IMF facility for Pakistan is not likely to be much different from the ones before. Nor the conditions are expected to be different. Hence, people like Mr Masud want the authorities to “devise a homegrown economic revival plan that must go beyond the IMF’s conventional [one-size-fits-all] recipe”.

He adds, “It’s essential to address our chronic issues and achieve sustainable economic growth. A strong political will is a prerequisite to undertake politically unwanted, but inescapable corrective actions.”

The new finance minister has laid out his agenda almost on the same lines as he plans to focus on implementation of the much-needed reforms. “No debates, no waste of time; just a steadfast commitment to implementation,” he was quoted to have said after he was sworn in as the minister.

Pakistan’s core problem, according to Mr Masud, is fragile fiscal position and short-term profile of domestic and external debt.

“This is where the focus of real reforms is inevitable. Our dilemma is that our public debt is swelling, and so is our private wealth, which means that, effectively, the rich are getting wealthier at the expense of the government, which is ostensibly borrowing to make the rich even richer,” Mr Masud argues.

Like others, he also advocates that the tax net needs to be enhanced and made equitable and judicious across sectors, with concrete efforts to migrate the informal economy towards digitisation and documentation.

But Mr Masud says politico-economic wheels have to move in tandem — including federal and provincial governments, private sector, and monetary and fiscal policies — for the common objective.

‘Perception matters’

Ahmed Kamal, one of the top textile and clothing exporters, is quite bullish on the economy since elections.

“The government has selected a very competent finance minister, who, in my opinion, will not take political pressure when making tough and unpopular decisions,” he says. “Aurangzeb’s appointment has sent a clear message to the world: Pakistan means business this time around and it is ready to carry out the necessary reforms.”

“You know, perception matters a lot. Once we are able to send a clear message to the world about our commitment to reform ourselves, we will start receiving foreign investment. And growth will follow,” he adds. “Pakistan has a lot of potential. We just haven’t marketed our country properly. Our poor country image has been the reason for our issues. We need perception for the industry to build.”

Prime Minister Shehbaz Sharif, who once described Pakistan’s economic challenge as unimaginable, recently said that “we have to carry out a surgical operation, as antibiotics will not work at all. There will be a deep surgery so that the roots of this country can deepen. Whenever there is a will, there is a way, and it is never too late.”

Ms Pasha says Pakistan’s story of boom-and-bust cycles will not end and the country cannot be put on a path of sustainable growth without reforms, no matter how many IMF programmes we take.

She believes the present government is well placed to carry out structural reforms beyond the IMF-mandated policies. “This government is in an ideal position; it is elected for five years and enjoys the full backing and support (from the powers that be) needed to take tough measures. If not now, when will they implement reforms?” she wonders.

Published in Dawn, March 18th, 2024

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