Last Chance for Reforms?

Author: Muhammad Arslan

Pakistan is once again at the doorstep of the IMF with a promise of structural reforms. This will be Pakistan’s 24th stunt with the IMF to rescue its economy. Pakistan marginally averted a default in 2022 with the help of the IMF’s standby agreement which is expiring at the end of this month. The IMF board is scheduled to convene on April 29 to deliberate on releasing the final tranche of its current programme with Pakistan. Pakistan’s finance minister expects an IMF mission to visit in May and  reach a staff-level agreement on its next loan by the end of June or early July. There are reports that Pakistan plans to ask for at least $6 billion from the IMF in a new staff level agreement.

Pakistan’s new finance minister Muhammad Aurangzaib during his visit to US for spring meetings of IMF and World Bank emphasized aggressive reforms in Pakistan, including widening the tax net, divesting loss-making SOEs. These include privatization, expanding the social safety net and facilitating the private sector.

The International Monetary Fund (IMF) also emphasized on prioritizing reforms to revitalize the Pakistani economy. IMF’s Middle East and Central Asia Director Jihad Azour said at a news conference in Washington that its important for Pakistan at this stage is to accelerate the reforms, double down on the structure of reforms in order to provide the country with its full potential of growth.

Pakistan can turn the current economic challenge into an opportunity with the help of structural reforms. Since joining the IMF in 1950, Pakistan has sought IMF bailouts 23 times in 75 years, reflecting the high unpredictability of its economy.

Unfortunately, governments in the past failed to keep their promises on the structural reforms. In times of economic difficulties, these governments went to the IMF with all the promises of structural reforms but unfortunately, as soon as there were some signs of economic recovery these governments abandoned the agenda of reforms for short term political gains.

Pakistan could have learned from its neighbor India when it last resorted to the IMF thirty years ago to pull its economy out of crises and started reforms.  As compared to Pakistan’s tally of 23 visits to IMF, India only went to the institution 7 times in its history. India’s last stand by agreement with the IMF was in the year 1991. According to IMF’s recent estimates, India’s nominal gross domestic product will likely outstrip Japan’s in 2025 to become the world’s fourth-largest economy.

According to the IMF Pakistan’s economic and financial position has improved, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners. However Pakistan is not out of the woods yet. The country needs to repay $77 billion in external debt between 2023 to 2026. Pakistan has only one option and that is economic reforms. Country needs to widening the tax net, divesting loss-making SOEs  including privatization, expanding the social safety net and facilitating the private sector.

For another IMF loan Pakistan is making all these reforms promises yet again. But, Unfortunately, these promises have been broken so many times in the past that there is a fear that history may not repeat itself. After a slight improvement in economic indicators the government must not once again act out of political expediency.

Finance Minister Muhammad Aurangzeb has stated that Pakistan’s economy has the potential to grow from over $300 billion at present to $3 trillion by 2047. But to achieve this Pakistan’s leadership needs to have political will and courage to implement structural reforms. It is necessary that the government and the opposition at least sit together on the economic agenda. There is an urgent need to limit the role of government in the economy. Pakistan needs to integrate its economy at the regional and global level with a special focus of looking into trade and investment opportunities with its neighboring countries.

Pakistan needs to realize hat it needs to abandon the policies of the past and move forward with a reform agenda. An agenda where the common people can be economically protected and the elite can contribute to the economic recovery. The very elite which has been occupying the resources of this country for the last seventy five years. This may be Pakistan’s last chance to implement reforms and after that no one will be willing to believe our promises again.

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