Daily Times

It seems Pakistan’s talks with the IMF are back on track again. There is no conclusive end in sight, yet there has been some contact by the both sides again. It seems PTI government wants to get another bailout package from the IMF, yet they do not want too harsh conditions to be imposed, particularly in their initial time in the government.

IMF will no doubt push Pakistan towards implementing structural reforms in the economic management. It is the not the first time, the talk of reforms is reverberating through the corridors of powers in Pakistan. It has been happening since the early 1990s.

As per the literature, the structural adjustment programme is essentially a sequence of reforms inspired by the neo-liberal school of thinking. Structural adjustment is based on an economic philosophy whose main elements are “liberalization, deregulation and privatization” of the economy. Structural adjustment policies were first implemented in the industrialized countries in the post-1973 oil crisis period to check inflation, tighten monetary and fiscal balance and liberalise trade. After their implementation in parts of the developed world, similar prescriptions were made for the developing countries. In the 1980s, they were “exported” to the developing countries as a panacea for economic problems. These policies had huge impact on the economy and politics of developing countries, including Pakistan. They aimed to replace the state led economic management with market driven forces. Therefore, the basic tenet of the structural adjustment programme is a shift of focus from government controlled to private sector run economy to reduce fiscal deficit. Economic structures in trade, financial, fiscal, monetary sectors underwent a liberalization transformation during the structural adjustment (SA) reforms.

Despite over a dozen of IMF programmes, Pakistan has not been able to bring about structural reforms. Now IMF seems focused on raising the power tariffs to deal with circular debt. PTI government has already increased the interest rates and devalued the Pakistani currency, as the IMF might have demanded it

International Financial Institutions (IFIs) also wanted to bring in corporate governance in Pakistan. The Structural Adjustment Programme back then wanted to cut back on the interventionist role of the state in Pakistan. Its prescriptions that have remained unchanged over the decades are tightening the fiscal belt, bringing in macroeconomic stability, liberalization of trade, free flow of currency exchange, and cutting down subsidies. IMF imposed the General Sales Tax (GST) in Pakistan to phase out revenue earned from tariffs and to increase revenue.

IFIs were also keen to bring in institutional second-generation governance reforms. These second generation reforms dealt with modernization of accounts and audit functions, tax reforms, regulation of government borrowings, institutionalization of a securities regulatory tasks, provision of access to information, and judicial system reforms.

Despite over a dozen of IMF programmes, Pakistan has not been able to bring about structural reforms. Now IMF seems focused on raising the power tariffs to deal with circular debt. PTI government has already increased the interest rates and devalued the Pakistani currency, as the IMF might have demanded it.

In a way, it is good that PTI government has not rushed into another IMF bailout this time around. Though, the government’s thinking is quite fuzzy and pros and cons of waiting on the IMF have not been made public to a large extent. It would have been worthwhile to know the blueprint of economic programme that PTI has in store for us.

There is also a need to determine whether the IMF demanded structural reforms are going to promote the welfare of people and strengthen the institutions. If so, then there is need to analyze the structural impediments blocking such reforms in the past and strategize ways on overcome those challenges.

It is also encouraging the PTI government is focused on bringing in more investment in the country rather than just being focused on handouts. Foreign direct investment is a more sustainable way to promote economic growth. Investments should not only be seen in terms of bringing in the scarce foreign exchange, efforts should also be made to transfer technology. Prime Minister Imran Khan is fond of quoting China’s success. China not only successfully brought in foreign investment and spurred its manufacturing, it also actively worked on acquisition of technology.

There are powerful interest groups in Pakistan who have resisted previous efforts to introduce structural reforms in the country. As political economy literature has been discussing for a long time that there are winners and losers when new measures are introduced. In Pakistan’s case, the potential losers from the reforms have been powerful enough to subvert the process of structural reforms. The government needs to become strong to impose its will and carry out reforms, if they are indeed going to improve the lives of us citizens of this country.

The writer is an Islamabad-based social scientist

Published in Daily Times, February 15^th 2019.