The pursuit of prosperity or a perpetual pain

An IMF mission is here to hold discussions on the second and final review of its short-term $3 billion rescue package that has helped Pakistan shore up its foreign exchange reserves and avert a sovereign default. The review will most likely be successfully completed, leading to a stafflevel agreement that would facilitate the disbursement of a $1.2bn tranche in the coming weeks, a vital injection for Pakistan’s economy.

Meanwhile, Finance Minister Muhammad Aurangzeb has already hinted at starting discussions with the lender about a bigger and longer successor bailout.

“We would at least kick-start the process and get this going. Let us see how they respond,” he said last week in his first formal media interaction after assuming the charge of the finance ministry. “Further negotiations on the fresh programme will be taken forward on the sidelines of the spring meetings of the IMF and the World Bank in April in Washington.”

A pattern of reliance on IMF bailouts, coupled with a lack of substantial reforms, has led to a scenario where Pakistan is on the brink and masses are reeling from economic pain. While the government has not officially stated the size or duration of the funding it plans to seek from the Fund, the lender has said it will formulate a medium-term programme if Islamabad applies for one.

“We look forward to engaging with the new government to complete the second review under the current stand-by arrangement and, should the government request, support the formulation of a new medium-term economic programme,” an IMF spokesperson told Reuters earlier this month.

If approved, the loan programme would be Pakistan’s 24th engagement with the global lender. The country has already earned the unenviable distinction of being the most frequent and the fourth largest customer of the IMF.

The question is: has Pakistan learnt any lessons from its previous 23 arrangements with the IMF? Apart from one, all the programmes were terminated midway due to tough conditions. Never has Pakistan met the goals of any package.

This pattern of reliance on IMF bailouts, coupled with a lack of substantial structural, governance, financial and economic reforms, has precipitated a scenario where Pakistan teeters on the edge of fiscal instability, with the masses groaning under huge economic pain.

Another IMF programme is most likely to increase this pain. Yet, most experts argue that Pakistan’s current situation leaves little room for alternative strategies, with other multilateral and bilateral creditors keenly watching the outcome of these negotiations.

“It’s given that a sizable, extended IMF programme is imperative for Pakistan. We have to appreciate, however, that the IMF prescriptions are [always] designed for macroeconomic stabilisation, not for growth. Therefore, there will be economic pain and anaemic growth in the medium term,” argues Zafar Masud, president and CEO of the Bank of Punjab.

Many economic analysts believe that the IMF’s financial support should be sought only to overcome crises like the short-term balance of payment troubles caused by exogenous or endogenous shocks and to create breathing space to implement policies that would restore economic stability and growth.

In Pakistan’s case, it has always been the opposite. Years of fiscal profligacy and the ruler’s obsession with creating import-intensive, consumption-led growth without correcting deep-seated structural economic and governance flaws take the country to the IMF every few years.