Pakistan’s economy, which is surviving on the dole, seems to be stuck in a phase where policies are not aimed at long-term development but only to pass the next International Monetary Fund (IMF) review. According to a report published in Business Recorder, a ‘survivalist’ economy has become institutionalized in the country, in which every policy decision is taken due to the fear that the IMF program might be derailed. As a result, the economy remains as vulnerable as ever and seems headed for yet another IMF bailout.
The report, written by economist Shahid Sattar, highlights Pakistan’s structural weaknesses. According to the report, Pakistan is grappling with a chronic ‘twin deficit’ on the one hand fiscal deficit, i.e. government expenditure exceeding its income, and on the other hand a balance of payments crisis, in which the country spends more foreign exchange than it earns. “For fifty years our imports, as a percentage of GDP, have been almost double our exports. In simple terms, Pakistan is a country that has failed to produce,” the report said.
The report strongly criticizes the IMF’s approach and calls it a ‘fanatic’ emphasis on revenue collection at the expense of value creation. “Under pressure to meet stringent fiscal targets at all costs, the IMF has promoted policies that stifle the export-led growth needed to break out of the debt spiral,” the report said.
The report also acknowledged that Pakistan’s old economic model, based on state patronage, was flawed and did not allocate resources properly. However, it highlighted an important distinction, saying, “There is a difference between weaning an addict and starving a healthy person. The IMF fails to differentiate between removing program support and subsidies and destroying entire ecosystems that support legitimate businesses.”
On paper, IMF programs are negotiated with the Finance Minister and the State Bank Governor and all policies recorded in the Letter of Intent are technically considered government ones. But according to the report, “In reality, the program reflects the will of the powers that have the most political and economic clout. When policies fail, the IMF says the government made them; the government says the IMF imposed them. This ambiguity is convenient for everyone except the country and its citizens.”
The report’s conclusion is full of warnings. “Unless we move our policy-making process away from the narrow, revenue-focused confines of IMF programs, we are not managing the crisis, but our own collapse,” it said.
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