Imran inherited economic mess, give him time to fix it

The Pakistan prime minister inherited a debtridden economy, but he will be responsible for making the IMF bailout a success

With Pakistani Finance Minister Asad Omar on the verge of clinching an IMF bailout programme, now’s a good time to understand three important things about the present state of the economy. One, how did things get so bad so quickly? Just as recently as late last summer the expected annual growth rate was 6.2 per cent. But the IMF warned on Tuesday, failure to accept their programme will push the rate down to 2.9 per cent this fiscal and 2.8 per cent next year.

Two, what role has the ruling PTI (Pakistan Tehreek e Insaf) played in this mess? Hadn’t Nawaz figured it out — strong currency, steady loans, what more do you want? — till Imran upset the apple cart with the Panama protest and, worse, election victory? Has it really spun out of control since Imran won the premiership and just groped around in the dark with no clear agenda, leaving Nawaz and the economy to rot?

And three, is this IMF bailout going to be any different than previous bailouts? We’ve had a dozen or so programmes with the Fund since 88, Structural Adjustment Programs, Extended Fund Facilities, Stand By Agreements, you name it, we did it with the IMF. Yet the economy’s grown progressively worse. Debt has always grown, revenue generation never improved and exports have yet to show any signs of value-added life. How and why, then, can this time be different?

Let’s start with the growth rate. As a journalist, you learn early that people, generally, have very short memories. So it’s not surprising, really, that almost nobody remembers PML-N very cleverly squeezed in a record sixth annual budget barely a quarter ahead of the election (usually there are five, because governments get five years in office). That’s when the deficit, now all the rage, was already in red. Yet the PML-N government floated a populist, hyper-expansionary budget, cutting taxes, dolling out development money; just short of delivering milk and honey at every doorstep.

In hindsight, it seems PML-N had read the writing on the wall. Its leadership disgraced and jailed, mass defections to PTI, and a growing sense that the so-called establishment was also backing Imran, PML-N forced a people-friendly budget when circumstances mandated exactly the opposite.

And, to be fair to Imran, inheriting this economy must have been an ‘out of the frying pan, into the fire’ experience for him. The rupee was already collapsing, interest rates were rising, the equity market had crashed many times over because of the Panama case anxiety and serious foreign investors had long since packed up and left. Whether or not delaying structured IMF aid for ad hoc friendly bailouts was the right thing to do is a debate for another day, but it’s a fair argument that when the fire’s spreading you take whatever water you can get.

So, the growth revision would more or less have come even if PML-N had won again, even if approaching the Fund sooner rather than later might have meant less rounds of inflation and job cuts. And the rupee would have collapsed. Nawaz’s finance minister, Ishaq Dar, had clearly kept the currency artificially overvalued. Why else did it collapse when he was forced to leave office and another PML-N finance minister tried to balance the equation? Also, the League has had its share of rounds with the IMF, and look where it left us when they last bowed out.

The main reason external assistance programmes have never solved any of Pakistan’s economic problems — and Imran has implied this repeatedly

Whether or not delaying structured IMF aid for ad hoc friendly bailouts was the right thing to do is a debate for another day, but it’s a fair argument that when the fire’s spreading you take whatever water you can get

during his “22 years of struggle” — is because they were just not supposed to. Why do you think there’s a direct, very strong, correlation between growth in personal fortunes of our ruling elite and foreign loans and IMF programmes in the last three decades? And why have sugar mills and industrial empires mushroomed around ruling families all the years our national debt has sky rocketed?

The loans never solved the people’s or the economy’s problems, in short, because the bulk of them was routed to numbered accounts. And when you’re busy building personal fortunes, as the Sharifs and Zardaris clearly have, there’s only so much time you can give recurring irritants like the economy. Throughout the last IMF programme, for example, the only “success” Dar could boast after regular meetings was getting the Fund to revise down quarterly targets; because they were regularly missed.

Imran believes he will prove the game changer because he’s not out to build a personal financial or political empire. If he can exercise enough control to ensure compliance with the programme agreed with the Fund, he might well oversee a long, painful, but eventually successful transition from near default to near stable growth. Even if he’s not completely to blame for the bad that has happened in the last eight months, he will be responsible for the success, or failure, of the IMF bailout.