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Caught in the IMF Trap: Pakistan’s Perennial

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In the realm of economic governance, Pakistan finds itself trapped in a never-ending cycle of dependence on the International Monetary Fund (IMF). This predicament, laden with consequences for the nation’s growth and stability, has been thoroughly examined by prominent authors, scholars, and economists. Through their insightful works, it becomes evident that Pakistan’s ongoing struggle with the IMF is a pressing concern that requires immediate attention and a comprehensive reassessment of economic policies.

Renowned economist Ha-Joon Chang, in his influential book “Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism,” offers a critical perspective on the IMF’s role in perpetuating the challenges faced by developing nations like Pakistan. Chang argues that the IMF’s policy prescriptions often prioritize the interests of advanced economies, leading to detrimental consequences for countries in need of financial assistance. He emphasizes the importance of economic autonomy and tailored policies for sustainable development, cautioning against blind adherence to IMF’s conditionalities.

Furthermore, Dr. Dani Rodrik, in his seminal work “The Globalization Paradox: Democracy and the Future of the World Economy,” sheds light on the detrimental effects of IMF programs on national sovereignty and democratic institutions. Rodrik argues that IMF-led austerity measures, often enforced as conditions for financial assistance, undermine the ability of governments to respond to their citizens’ needs and exacerbate social inequalities. He advocates for a more flexible approach that considers the unique circumstances and priorities of individual nations.

Addressing Pakistan’s specific predicament, Dr. Akbar Zaidi, an esteemed economist specializing in South Asian economies, delves into the nation’s repeated reliance on the IMF in his book “Issues in Pakistan’s Economy.” Zaidi highlights the structural weaknesses within Pakistan’s economic framework that perpetuate the cycle of dependence on the IMF. He underscores the urgent need for comprehensive reforms aimed at bolstering domestic revenue generation, reducing corruption, and enhancing governance to break free from this vicious cycle.

This ongoing dilemma has severe repercussions for Pakistan’s economic and social fabric. The IMF’s loan conditions often necessitate harsh austerity measures, resulting in reduced public spending on critical sectors such as education, healthcare, and infrastructure. This stifles human development, exacerbates poverty, and impedes long-term sustainable growth.

To extricate itself from this quagmire, Pakistan must undertake a multifaceted approach. First and foremost, the nation needs to prioritize comprehensive structural reforms aimed at reducing reliance on external borrowing. By bolstering revenue generation through progressive taxation, curbing tax evasion, and fostering a conducive business environment, Pakistan can gradually reduce its dependence on IMF loans. Simultaneously, the government must invest in human capital and domestic industries to promote self-reliance and export-led growth. By focusing on sectors with a comparative advantage, such as agriculture, textiles, and technology, Pakistan can strengthen its economic resilience and diminish the need for external financial aid.

Moreover, Pakistan must actively engage with regional partners, such as China and neighboring countries, to explore alternative avenues for economic cooperation and assistance. By diversifying its sources of funding, Pakistan can reduce its vulnerability to the IMF’s conditionalities and ensure greater policy autonomy. Pakistan’s perpetual dependence on the IMF reflects a complex web of economic, political, and structural challenges. Escaping the IMF trap demands a holistic approach, encompassing domestic reforms, strategic investments, and diversified partnerships. Only through these measures can Pakistan break free from the cycle of reliance and pave the way for a prosperous future.

At present, Pakistan is facing a challenge in arranging funds for loan repayments and budget planning in the upcoming fiscal year, according to sources. During the first half of the next fiscal year, Pakistan needs to secure funds to pay off external debts, which total $11 billion, including interest. Even if China and Saudi Arabia extend the deadlines for their short-term debts, Pakistan still requires over $4 billion to repay international creditors. These creditors include the World Bank, the Asian Development Bank, the Saudi Fund for Development, the Islamic Development Bank, and Chinese commercial banks.

Nathan Porter, IMF’s Mission Chief in his statement, mentioned the budget for the next fiscal year, which the government intends to present around June 10. He stated that the IMF supports the government in implementing policies and preparing the fiscal 2024 budget. This budget must be approved by the National Assembly before the end of June, according to Porter. The Ministry of Finance, already struggling to fulfill other obligations, expressed frustration over the IMF’s new demand. Senior officials argued that the IMF should not connect the approval of the 9th review with the next year’s budget. They believe the matter of the fiscal year 2023-24 budget should be addressed during discussions for the 11th review.

With less than two months remaining until the expiry of the $6.5 billion IMF program, it seems unlikely that Pakistan and the IMF will smoothly complete the remaining three reviews. This will bring yet another external sector burden of $30bn in next fiscal year. I6 has also been reported in media that UAE and KSA have asked government to have agreement signed with IMF before they can fund Pakistan to strengthen national exchequer of Pakistan. Meanwhile, IMF asks Pakistan to get Letter of Intent issued from friendly countries to get IMF deal done on 9th review, so this chicken and egg paradox prevails thus far. The finance ministry sources revealed that the finance secretary recently urged Nathan Porter to reconsider the demand for an agreement on the next year’s budget. However, the IMF, already frustrated by the government’s conflicting claims about meeting conditions, may not provide significant relief to Pakistan. There are concerns that the coalition government might present a budget driven by political motives. Such a budget could further impede efforts to overcome the country’s economic crisis in the near future.

 

The writer is economic analyst based in Islamabad .

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