Daily Times

Pakistan was economically prosperous during the 1980s, and today it is among the poorest. Its current GDP growth is estimated close to 2 percent, barely sufficient to keep pace with population growth. As I stated in my Op-Ed published in Daily Times (Dec. 2019), Pakistan is bankrupt. Last year, the sum of interest payments due to the government’s debt obligations and pension payments owed to retired employees was more than the federal government’s net revenue. Pakistan is running on borrowed money. Sadly, some Pakistanis are instinctively aware, and the political leaders and bureaucrats know it but continue stealing the borrowed money as if tomorrow will never come.

People elected Pakistan Tehreek-e-Insaf on the promise that it will bring about a change. However, as of today, it is a complete disaster. It has not only reduced economic growth but has also implemented policies that will make Pakistan bankrupt. In a nutshell, IMF and Khan’s programs have produced disastrous results for Pakistan. Every time the IMF gets involved, expect failed economic results.

Political instability, the harsh cookie-cutter conditions of the Fund, and lack of ownership by anyone have resulted in failed/less effective IMF programs. Throughout its 61-year history, Pakistan has gone to the IMF 21 times. Most of these times should be considered bailouts. As of March 2019, the public debt of Pakistan was about ? 35.094 trillion, which is 91.2 percent of the country’s gross domestic product (GDP). The government owes about ? 18.17 trillion to domestic creditors and about ? 1.378 trillion to Public Sector Enterprises (PSEs). Pakistan also has an external debt of around US$105 billion, of which it owes US$11.3 billion to the Paris Club, US$27 billion to multilateral donors, US$5.765 billion to the International Monetary Fund, and US$12 billion to international bonds, such as Eurobond and Sukuk. About a fifth of the external debt, US$19 billion, is owed to China.

The trouble is that the IMF loans come with conditions, such as improving tax collection and ending utility subsidies that, in essence, set the economic policy agenda for the Khan government. These conditions will result in further economic disaster

Meanwhile, the country’s accumulated debt was 72.5 percent of GDP in 2018, up from 67.20 percent in 2017, and external debt jumped to 106891 USD Million in the third quarter of 2019, from 99086 USD Million in the fourth quarter of 2018. Furthermore, foreign currency reserves and foreign capital flows have been falling rapidly. Also, Pakistan had borrowed billions of dollars in loans from friendly countries, including China, Saudi Arabia, and the United Arab Emirates. But even that was not enough to cover the interest payments on past debts.

DAWN (Jan. 31. 2020) reported that the government admitted to major violations of the Fiscal Responsibility and Debt Limitation Act (FRDLA) for massively exceeding debt acquisition limits in public debt and liabilities in 15 months. As of February 1, 2020, the total debt and liabilities stood at Rs 29.879 trillion at the end of the fiscal year 2018 crossed Rs 41.489tr at the end of September 2019, showing an increase of Rs11.6tr or 39pc. At the end of the fiscal year 2019, the total debt and liabilities have increased by about 35pc or Rs 10.344tr to touch Rs 40.223tr. On top of that, the federal fiscal deficit (excluding grants) was Rs 3,635 billion or 9.4pc of GDP during FY 2018-19, thus, remaining higher than the threshold of four percent.

Because of the tremendous spending, loans, and required payment of interest on the loan, Khan will have to continue begging the IMF for the loan with conditions that will put Pakistan in a more desperate situation than it was before. The trouble is that the IMF loans come with conditions, such as improving tax collection and ending utility subsidies that, in essence, set the economic policy agenda for the Khan government. These conditions will result in further economic disaster. In addition, because of high-interest payment, the required cost of the military and the retirees, and higher than high normal corruption, I predict that Pakistan will be knocking on the IMF and other doors for more loans next year as the politicians and bureaucrats have already stolen or wasted most of the recent loans. Thanks to Khan, Pakistan has raised its corruption index by 3, from 117 to 120 out of 180 in 2019. I predict that by the time Khan is out of the office, Pakistan’s corruption index will go even higher (by more than ten points in three and a half years, i.e., 130 or more). Some Pakistanis call the current government as the second most corrupt regime in the history of Pakistan.

Very few Pakistanis pay income taxes, but the IMF wants a rapid increase in tax collection without explaining how to accomplish it. In addition, the IMF wants major cuts in government spending, and it is fully aware that the austerity will invariably cause a growth slowdown. To make matters worse, the IMF is also demanding higher spending cuts on services for the poor and investment in poor areas. Additionally, the IMF wants to end subsidies for gas and electricity and require price controls for some items to be set by an independent body. Despite the required spending cuts by the IMF, Khan is borrowing and spending like there is no tomorrow.

DAWN reported (Feb 2, 2020) that “FBR report finds high-ranking officials involved in large-scale corruption.” In a public speech given at Pind Dadan Khan on Dec 26, 2019, PM Imran Khan had referred to corruption in the customs department by saying, “We found one collector customs in one area who was earning Rs70 crore per month.” It proves Pakistan does not need more income taxes; it needs to collect what it is legally owed. Sadly, the IMF never conditioned its loan on curbing corruption.

The suggested policy of controlling prices shows the naivety of the IMF. Sadly, it has forgotten the history of U.S. price controls in the 1970s under President Nixon. It almost destroyed the economy. Repeating the same failed policy, which will result in economic disaster, shows that incompetent, uneducated people run the IMF. Its incompetence further proves my point of why no country’s leaders should ever let the IMF near their country as most of its suggestions are unrealistic and result in economic and social disaster. Yahoo reported (Jan. 20, 2020) that because of price control, wheat has disappeared from the market in Pakistan, and bread makers have closed their shops as they cannot make money with the suggested price set for Nan. Here is another proof of the unrealistic IMF and Khan policies and more to come. To further warn the international financial institutions of their laissez-faire attitude about the loans, Atif Mian has stated that, “If an airplane took off a dozen times only to come crashing down each time, the only logical conclusion would be that the aircraft requires a fundamental redesign. Pakistan’s economy, like the airplane, has crashed 13 times or more in the last 60 years, each time requiring an International Monetary Fund bailout” (The New York Times, Dec. 10, 2019). I hope that now IMF wakes up and realizes that it is incapable of solving anyone’s problems and will stop interfering in the economic problems of other countries. However, I am sure that they will not heed my advice. Because I suspect the motives of both the IMF and Pakistan are selfish, which makes them continue their disastrous economic involvement with no end in sight.

The writer is PhD (USA), Professor Emeritus (USA)