Pakistan enters into another IMF program in the middle of an economic crisis. The last 21 IMF programs failed to solve the fundamental problems of Pakistani economy. Now the question is will the 22nd IMF bailout program will finally fix the economy to achieve sustainable economic growth and job creation.
The answer is simple no. There are two reasons for this answer. One, no country in the world in last forty years had been able to achieve the high growth rate, prosperity and high living standards as the result of an IMF program. The IMF program works under neoliberal economic framework which is not beneficial for the developing economies. IMF dictated policies are beneficial for the elite and strengthen its grip and control over the economy.
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The other reason is that Pakistani elite and ruling class is not ready to undertake the necessary reforms and measures to increase the revenues and to reduce the non-development and non-productive expenditures. The elite are not ready to share the responsibility of economic crisis.
The elite wanted to shift the whole burden of crisis onto the masses. The elite and ruling class is not ready to pay taxes, broaden the tax net, document the informal economy and share the wealth with ordinary Pakistanis.
The current economic crisis is severe one and has already affected all the major sectors of the economy. It is not just the twin deficit of trade and current account. It is more than the just financial crunch. It is the crisis of productive forces. Both the agricultural and industrial output has fallen.
Pakistan needs to reform its economy. The PTI government has shown so far that it is not capable of undertaking the necessary reforms. Pakistan needs to undertake major reforms in the agriculture and industrial sectors and tax system. Without fundamental reforms, Pakistan will not be able to increase the revenues to the level necessary to overcome the fiscal deficits. It is a major task to transform the Pakistani economy from an import economy to export driven one. No serious measure so far has been taken by this government in that direction.
PTI government went to IMF when almost all the economic indicators are showing the poor performance of the economy. The economy has already slowed down. The rupee continues to fall without any end in the sight. The rupee lost Rs9.60 value against US dollar in last four days. The exports are stagnant and failed to increase in last one year. Imports have slightly fallen but significant gap still exist between imports and exports.
The inflation is rising. The prices of electricity, gas, and oil and food stuff have already gone up. The daily utilities have become expensive. The PTI government will be forced to implement the IMF conditions to further increase the prices of utilities. The OGRA has already sent the summary to the government for the 47% increase in gas prices. The electricity will go up at least 15%. The State Bank has already increased the interest rates to make the borrowing much expensive.
Pakistan will be forced to increase the prices of energy, impose more taxes, and reduce state subsidies and to lower the value of the currency. These conditions will increase the inflation and unemployment and lower the economic growth rate. These conditions will hurt the poor working masses and lower middle class very badly. Poverty will increase as the result of the measures. The economic figures might improve as the result of IMF imposed conditions but living of standards and incomes will fall.
The results and experiences of last 22 programs showed us that ruling class simply transfer the economic burden of IMF conditionalities on to the masses. It implements the conditions affecting the poor sections of population and middle class. But it resists the conditions that could hurt the interests of ruling classes and elite. Different interest groups within the ruling classes and elite always resist the measures and policies that aimed to broaden the tax net and base and to document the informal economy.
The PTI government brings in the Technocrats to fix the economy. The IMF men are now running the economy. The PTI government hands over the economic policies to the trusted men of IMF. The Technocrats tend to ignore the political cost in their proposed policies and plan. They are not concerned about their voters and political base as compare to the elected representatives. So they make economic policies in the framework of IMF and carry out the conditions imposed by the IMF without any political considerations.
That is where the real challenge of the 39-month stabilisation programme emerges. Independent economists are already estimating a loss of almost two million jobs over the three-year period and the nearly 10 million people falling below the poverty line. It will be hard for PM Imran khan to fulfill its promises of 10 million jobs and 5 million houses. It will become hard for PTI government to undertake the populist measures and decisions to satisfy the populist sentiments of the masses.
The problem is that the IMF programme will continue until the last quarter of 2022, leaving less than a year for the PTI government to generate jobs in an election year. The PTI term will end in August 2023.
The IMF conditions are really tough. Pakistan has to ensure timely implementation of prior actions and secure letters of comfort from China, Saudi Arabia and the United Arab Emirates to roll over more than $8bn of their bilateral loans.
Pakistan has to ensure an ambitious structural reform agenda that supplements economic policies to rekindle growth and improve living standards, the IMF said. But it warned that financing from Pakistan’s international partners will be critical to support the authorities’ adjustment efforts and ensure that the medium-term programme objectives are achieved.
Decisive policies and reforms, together with significant external financing, are necessary to reduce vulnerabilities faster, increase confidence and put the economy back on a sustainable growth path, with stronger private-sector activity and job creation,” the IMF said.
The private sector is reluctant to invest under the present circumstances. The accountability process has created the sense of fear in the business community. The government has cut the development budget. Without the domestic investment, the economy will continue to suffer.
The government needs to take concrete steps and policy measures to overcome the current economic crisis. The mere slogans and rhetoric will not solve it. The IMF program will not solve the basic problems of the economy. It needs a progressive economic vision and road map. PTI government lacks it.
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27 September, 2019