Daily Times

The tiger is indeed in a corner once again. When Imran Khan takes oath, he will not just be accepting full responsibility of running the state of Pakistan to the best of his potential, but will be inheriting one of the biggest economic crises that the country has ever found itself in.

From the time when PML-N took reign of the country in 2013, till the time it was ousted in the recently held general elections of 2018, Pakistan’s external debt increased from $61 billion to $93 billion, reflecting an increase of over 50 percent. The economic policies pursued by the previous government left Pakistan with a balance of payment crisis, a record high debt, and a currency which is at one of it’s highest levels of devaluation. Such a scenario has significantly increased risks to Pakistan’s medium-term capacity to repay. Currently, Pakistan is a crisis-ridden developing country struggling to fix its troubled economy.

Amidst the foreign reserve fiasco, there have been reports stipulating Pakistan to be drawing plans to seek its largest ever bailout from the International Monetary Fund (IMF), amounting to $12 billion. Many are of the view point that this may be the only option for the government to stabilise the ensuing crisis. Though there is little to hold Imran Khan accountable for the current state of affairs, his policies on how to deal with issues at hand will be very consequential for the country. What should be asked is not whether going to IMF is a straightforward solution, but if it is a suitable one.

IMF is notorious for asserting austerity measures, which include, but are not limited to, cutting public spending, raising interest rates, privatising state owned enterprises, deregulating key industries, and even dictating tax restructuring. Pakistan itself is not estranged from this phenomenon

A large faction of global economist view IMF to be a force that capitalises on crises, similar to those that Pakistan faces today. It does not appear to have helped countries achieve economic independence, or sustainable development. To the contrary, with support from historical evidence, it can be claimed that IMF-administered bailout programmes are facades for injecting economic paralysis, luring developing countries into a vicious cycle of debt and dependency. Of those who were “rescued”, 41 countries have been relying on IMF credit for a period ranging up to 19 years; 32 have been consistent borrowers for up to 29 years; and 11 have gone on to be aid dependent for at least 30 years. Such alarming figures are clearly reflective of the fact that it is almost impossible to preclude an economy from IMF’s excessive debt programmes and influence, once entrapped by it.

The way IMF works is by binding policy choices, referred to as structural adjustment programmes for recipient countries to employ, in exchange for funds. IMF is notorious for asserting on austerity measures, which include, but are not limited to, cutting public spending, raising interest rates, privatising state owned enterprises, deregulating key industries, and even dictating tax restructuring. Pakistan itself is not estranged from this phenomenon. It has spent the major part of the last three decades being caught up in numerous IMF bailout programmes, being forced to undergo unplanned spending cuts, alongside distortionary tax policies. Such mechanisms have undermined the country’s growth potential, and eroded state capacity.

Willingly or unwillingly, Imran Khan’s government will be lead to repeat the same mistakes as short-term focus for these programmes will overshadow the need for actual reforms in an already neglected public sector. In addition, the IMF proposed strategies are more than likely to be in stark contrast to what Imran Khan promised both before and after the elections. The creation of a welfare state demands excessive spending on public utilities such as education, healthcare, and increased government service delivery. Unable to follow through with his promises, Imran will not only hinder the country’s chance of evolving and developing, but will also usher a loss of confidence that the nation has entrusted him with.

Negotiating the terms of the bailout are likely to be even more difficult, and least favourable for Pakistan, this time around. The play transcends just a mere negotiation between the IMF and Pakistan’s government. It entails the involvement of the United States (US), the world’s largest economy, and China, which has transformed itself into a new economic powerhouse, posing as a looming threat to the United States’ economic dominance in the global arena. Because the US is the largest contributor to IMF, it has the power to exert authority over any IMF bailout, and can use that very influence to strong-arm Pakistan in scaling back billions of dollars’ worth of Chinese investment as part of China’s One Belt, One Road (OBOR) initiative.

The supposed $12 billion bailout will not only give IMF the leverage to dictate domestic policies, but will also allow the US to assert their agenda over China’s plans in Pakistan. This may not only provoke China, but may very well jeopardise Pakistan’s long term working relationship with them. Going to IMF would strictly undermine both the autonomy, and sovereignty of the newly established government by the likely imposition of unfitting, and most importantly, untimely policies.

The challenge is to craft a politically-feasible economic reform package that will pass in the parliament, receive acceptance from the public, avoid disruptive actions from businesses and state entities, and most importantly would not provoke the US and China to pose unwarranted hurdles. To deal with the current scenario, Imran Khan not only needs a team of sound economists, but experts in global governance who are trained in the art of negotiation, diplomacy, and tactful persuasion with not just one of the world’s leading financial organisations, but two of the world’s most powerful states as well.

At this time, it is hard to predict if Imran will be able to successfully manoeuvre through this precarious situation. But what can be said with utmost certainty is that the tiger has indeed been cornered, and this time, he not only needs to be at its fiercest, but his niftiest as well.

The writer is a post-grad dual degree student at the London School of Economics and Political Science (LSE), and Columbia University, studying Economic and Political Development. He is President of the LSE South Asia Society, Director of LSE South Asia Development Conference, and also consults for the United Nations Development Programme. Twitter @nauraizrana

Published in Daily Times, August 6^th 2018.