When tracing Pakistan’s progress, a predominantly agricultural country, we see that it transformed into a semi-industrialised economy, which then ushered in import-oriented and debt-driven growth with an increasingly vulnerable external sector.

Stressing the need to accelerate export-led growth, Finance Minister Muhammed Aurangzeb said that import-led subsidised businesses were no longer sustainable. While the need to boost exports cannot be overemphasised, the challenges in this endeavour are enormous. These include low domestic productivity, high cost of doing business, shrinking space for free trade restricted by surging worldwide protectionism, and international trade/economic sanctions.

The private sector borrowed Rs73 billion from July 1 to March 8 in fiscal year 2024, compared to Rs246bn in the same period of last year, as per State Bank data, due to costly bank credit, unstable foreign exchange rate and the economy in distress.

The pursuit of microeconomic stability at the cost of economic development and growth maximising local resources may result in a disastrous debt trap

In pursuit of microeconomic stability, fiscal, monetary and currency policies were prioritised to keep the financial sector afloat at the cost of economic development and growth.

“Empirical evidence shows, a one per cent cut in policy rate will reduce interest payments (the single largest budgetary expenditure) by over Rs350bn in one year,” says Dr Ashfaque Hasan Khan, director-general of the National University of Science & Technology’s Institute of Policy Studies and a former federal finance secretary.

In a bid to resolve recurring international financial crises through technocracy-led financial globalisation in the early 1970s, the initiation of the people-centric economic development strategy was put on the back burner. The technocracy at the helm of financial affairs, often supported by arbitrary rule, also strengthened the idea of the separation of economics and politics.

While explaining why Western society is so pessimistic, British economic historian Robert Skidelsky laments, ‘it is the absence of a redemptive political vision’ adding to the public’s growing economic disillusionment. One may add that the solution lies in creating an egalitarian society.

Of the 24 loan programmes, Pakistan completed only one, which was enabled by liberal waivers granted to the then PML-N government

Under the recent terms of reference announced by the government, the Economic Coordination Committee (ECC) would monitor the monetary and credit situation and make proposals to regulate credit to maximise production and exports and prevent inflation.

While the International Monetary Fund (IMF) programme is needed for macroeconomic stability, Prime Minister Shahbaz Sharif says, “It should be clear that the country should also prioritise and target economic growth, provide employment and reduce inflation.” He argues that the upcoming IMF programme should not be used as an excuse to retard the country’s economic growth.

But no effort has yet been made to develop a homegrown economic strategy to maximise the use of local natural resources and human capital to reduce external dependence to sustainable levels — brain drain continues unabated.

The ECC will also identify and propose measures to gradually attain the status of a welfare state — a concept destroyed by the increasing frequency of financial crises.

To quote economist and researcher Shahid Mahmood, “The whole process of Pakistan’s centralised planning is questionable and dubious. To put it mildly, in its present shape, the Public Sector Development Programme (PSDP) provides substantial ‘free riding’ to interest groups. The ‘throw-forward’ (the needed future expense to complete these projects) has crossed a whopping Rs8 trillion.”

Referring to a joint research report by a team of notable economists on ‘Reforming the Federal Public Sector Development Programme’, Mr Mahmood observes that the report reflects the waste being piled up in the name of development through the PSDP. The caretaker government recently allowed a cost escalation of about 30pc to ‘ongoing contractors’ of development projects.

The country’s large PSDP portfolio is stated to have always been subject to time and cost overruns, leading to repeated revisions in financial costs.

To state a recent example, the Golen Gol Hydropower Project was completed at a cost of Rs30bn against the initial estimate of Rs7bn.

However, the premier has made it clear that it was not the government’s job to set up industries but to consult with the relevant stakeholders to create effective policy instruments.

Looking at the way forward, while there is consensus on the need for an IMF bailout, there are fears about the implications of a larger and longer-term debt deal.

When noting that Pakistan is preparing to seek an $8bn loan from the IMF for a five-year programme, Dr Ashfaque Hasan Khan observed, “This will be a disaster [debt trap] for Pakistan,” as in the case of Argentina. The Latin American country has remained under the IMF programme for almost half a century with no way out.

Observing that our foreign exchange earnings will not be enough to repay the larger amount, Mr Khan suggested that Pakistan should focus on attracting foreign investment.

Of the 24 loan programmes, only one was completed by Pakistan, enabled by liberal waivers granted to the then PML-N government.

To quote an analytical piece from Dawn, the next IMF bailout, described as an imperative for stability, “has made it clear that its broad goals will remain the same as the previous agreements. Will the outcome be different this time?”

Pakistan has often asked the Fund not to micromanage the economy and to review the sequence and pace of reforms to facilitate their effective implementation.

According to the Business Recorder, the view gaining ground is that the IMF staff continues to “ignore their design flaws, which are based on general economic principles rather than tailored to Pakistan’s unique design paradigm.”

Published in Dawn, The Business and Finance Weekly, April 1st, 2024

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