Daily Times

It was in 1958 that Pakistan’s long and complicated affair with the IMF began. Now, it’s more than 60 years later and the pair have signed 22 agreements between them, the last concluded as recently as 2019. To all intents and purposes, the relationship seems to be going from strength to strength with the most noticeable change being the granting of larger loans over longer periods. From the time of General Ayub Khan all the way through to the current PTI government, Pakistan has borrowed SDRs (Special Drawing Rights) totalling some USD 13.79. The PPP borrowed almost half this amount (47 percent), while the PML-N followed (35 percent) and non-democratic regimes trailed behind (18 percent).

Thus, we must ask ourselves whether it has been worth it. Have these lending agreements truly helped us, the people, and our economy?

Dissenters believe that IMF programmes negatively impact developing countries’ economic growth due to their inherently strict terms and conditions. These include, the economic circumstances of the borrower, specific economic characteristics (such as lower aid flows and high debts), fiscal deficit, and — to make matters worse – currency devaluation.

Research by Przeworski and Vreeland (2000) finds that borrower countries suffer a negative growth impact which lasts for the duration of the prescribed IMF programme. The study also compares a set of countries with similar fiscal and monetary challenges and problems. However, some were IMF participants, others were not. The data revealed that those countries which that signed up for loans grew 2.35 percent less than those not associated with the Fund.

Other economists have criticised what they see as the IMF’s neo-liberal policies, while some disapprove of the overall system of conditional loans that trigger policies that may be ill-suited to the economic environment of borrowing countries.

Dismissing these IMF loan conditions as ‘unjustified’ will not be conducive. Mr Tarin and his team will have to turn the tables on the financial front to add weight to his ambitious plans

Unfortunately, Pakistan is home to an economy that has had a long and turbulent history, coinciding with a long account of IMF agreements. It therefore remains imperative to understand these schemes both at the government and public level. The IMF Staff Report released in April outlined additional stringent conditions that Pakistan must fulfil (within six months) or else risk the $6 billion-programme. These include increasing electricity tariffs by Rs 5.65 percent (or 36 percent) from April-October, placing an additional Rs 884 billon on consumers. Elsewhere, taxes must be raised equal to1.1 percent of GDP for around Rs 600 billion in June. Thereby placing an additional burden of Rs 1,500 billion on the country.

The budgetary reforms by the IMF are also quite daunting – from a budgetary target of 7.1 percent of GDP to a 6- percent growth in provincial tax revenues and a whopping Rs 6,573 billion estimated national revenues for 2020-21.

Given the above, as well as our Covid-hit economy, inherited fiscal challenges, and vulnerable geo-economic status, Finance Minister Shaukat Tarin was well within his rights to call for a renegotiation of the IMF agreement, while pointing out that the country currently did not have the capacity to raise either taxes or tariffs. In addition, an increase on either front may heighten public and political agitation.

Be that as it may, dismissing these loan conditions as “unjustified” will not be conducive. Mr Tarin and his team will have to turn the tables on the financial front to add weight to his ambitious plans. As economists, we must examine the case studies of those countries that have successfully triumphed in the face of mounting debts. Turkey, one of our closest allies, can offer us lessons in this regard, as can other strengthening economies:

Change in Leadership Attitude: Like Ankara, we need to remain firm in the face of harsh IMF political conditions whose terms may not be in our best interests;

Formation of a Think-Tank: The government needs to establish a think-tank of technocrats and political representatives equipped to prepare counter proposals and measures to IMF loans, complemented with sound government-owned programmes;

Aid from Strategic Allies: Pakistan receives $11billion in assistance from China; we must explore similar alternatives that incur much less interest and political interference than IMF schemes’

Foreign Investment: CPEC and Special Economic Zones (SEZs) can rejuvenate fading Foreign Direct Investments (FDIs) through better geo-economic ties;

Strengthening Private Sector: I have continuously pointed out the need to privatise institutions not performing at par. These must also introduce a systematic approach to contributing towards financial stability and ought to be headed by experts and technocrats;

Increasing Tax Net: Instead of increasing taxes, the government must introduce an aggressive nationwide taxation campaign; not for white and blue-collar workers but for the elites and corporate sector alike;

Increase in Remittances: Roshan Digital Account has been a great initiative. However, given that there are more than 9 million overseas Pakistanis, this service must include pronounced value-added features catering to a wider net of users;

The upshot is that political stability and fiscal discipline will be essential to do away with all economic evils and turn the International Monetary Fund into an Internal Monetary Fund.

Special Advisor (Pakistan Institute of Management, Lahore operated under Federal Ministry of Industries and Production, Islamabad) and Foreign Research Associate (Centre of Excellence, China Pakistan Economic Corridor, Islamabad)