Time to say goodbye to IMF?

Economics is often described as a dismal science. So, when you read that the Pakistan economy — after eight years of miserably low economic growth — will, over the next five years, show at best a marginal improvement, then you are certainly right to think that this description captures not just the discipline of economics, but also unfortunately the state of Pakistan’s economy.

 

The IMF forecasts that all we can look forward to till 2019/20 is a growth rate of just over 5pc. With our labour force growing at around 3pc, the economy must grow at over 7pc just to absorb eager and restless new entrants into the labour market. Indeed, we need to grow faster to reduce the high levels of existing unemployment, poverty and malnutrition. Faster growth will help us pay back our mounting debt and to increase our dismal low levels of investment in education and health. At our lower growth rate, the income gap with our faster-growing neighbours will increase, creating a security imbalance in the region. To put it bluntly, we need to push up our growth rate and sustain it at 7pc to 8pc to compete and survive.

The key question then is why things have gone so wrong. Those looking for easy answers put the blame on the IMF as the current downturn (that started in the 1990s) coincides with Pakistan’s heavy reliance on IMF assistance and prescriptions. Between 1989 and 2015, the Pakistan economy has been run under IMF tutelage for most of this period.

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The disappointing results of our long partnership with the IMF make a strong case of moving away from it.

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So is the IMF to blame for our current predicament? Certainly not to the extent that its critics allege. Pakistan’s economic problems are fundamentally structural and can be traced to recurring balance-of-payments crisis and unsustainable fiscal deficits leaving at times little option but to resort to the IMF to bail us out of an impending debt default situation. Why then, having followed IMF stabilisation policies and restoring macroeconomic stability, have we failed to break out of the current ‘low-level growth trap’?
The IMF’s answer to this question is that Pakistan has not been able to fully implement the set of agreed economic reforms under different IMF programmes. The measures are encapsulated in the mantra of a former finance minister and later prime minister: ‘Deregulation, liberalisation and privatisation’. Even the current IMF programme signed in 2013 has survived only because of the many ‘waivers’ given on the mutually agreed reform package.

For more detail   Time to say goodbye to IMF?

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