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Is Pakistan on the way to living without the IMF?
by Abdul Khaliq
1 December 2018

Pakistan is perhaps the only country in South Asia with a history of repeated engagements with the IMF – 21 loan agreements since 1959. The last one was concluded in September 2016. Despite that, Pakistan’s economic woes have not been resolved. Its economy is still in bad shape, with soaring debt, a widening current-account deficit and foreign exchange reserves falling to just around $9 billion, not enough to cover two-months’ imports.

In the outgoing fiscal year, Pakistan’s current account deficit has swelled to an all-time high of $18 billion, while the budget deficit edged up to around 6.6% of GDP. Pakistan requires approximately $12 billion for balance of payments support by the end of June next year. The new Pakistan Tehrik-e-Insaaf (PTI) government of Prime Minister Imran Khan is desperately seeking financial support from all corners to fill this alarming gap. Though it has been successful to some extent, by securing a $6 billion deal from Saudi Arabia and almost the same amount from China and the UAE together, but it is still not out of the woods.

Cognizant of the looming financial woes, the government decided to knock on IMF doors for a bailout package of around $6-$7 billion. It is pertinent to mention that this is the third consecutive civilian government seeking IMF support at the very onset of its tenure. In 2008, the Pakistan Peoples Party (PPP) government went to IMF. In 2013 the Pakistan Muslim League (PML-N) government approached IMF and now in 2018, the PTI is going to do the same at the start of its five-year term.

An IMF delegation led by Herald Finger, has just been on a two week-long visit for talks on a financial package at the request of the Pakistani government seeking help with its balance of payment issues. However, the visit remained inconclusive, with the announcement of another round of talks in January 2019. It is highly important to note that Pakistan, this time, has refused to cave in and accept the tough conditions imposed by the IMF. Nevertheless, the question is – how long it may be able to resist? Will Pakistan be able to divorce from the IMF?

The conditions reportedly included; increased energy tariffs from 20 to 22%, imposition of more taxes and sharing details related to Chinese financial assistance. The mission also asked for further devaluation of the Pakistani rupee, already depreciated more than 27% since the start of this year and 15% in the last five months alone. As far as the contractual agreements with China are concerned, this is something Pakistan does not want to share with the IMF citing financial or national security reasons. China has pledged some $60 billion in financing for ports, railways and roads under the China Pakistan Economic Corridor (CPEC) agreements.

The general perception is that the government has done the right thing by refusing to cave in to the IMF’s strict demands. None of the mainstream political parties have criticized avoiding the IMF. Economists are of the view that Pakistan can still avoid the IMF. It is not dying for the bailout at this stage and can capitalize on the available cushion. The PTI government assumes itself to be in a comfortable position after the availability of $6 billion from Saudi Arabia and the assurance of similar amounts from friends like China and UAE.

The pro-people economic experts are convinced that the government’s decision to resist the IMF is the right decision. They believe that none of the IMF programs in the past have worked, otherwise Pakistan’s economy would be in a better state today. Most of the measures called for by the IMF in the latest discussions, were not in the interest of the people of Pakistan.

A number of studies, carried out by Pakistani economists confirm that during the 1988-1999 structural adjustment period, the levels of inequality and poverty increased. The decade 1992-2002 witnessed a decrease of per capita income and per capita GDP, worsening the gap between the rich and the poor. Similarly, the data between 1981-2001 confirms many of the above-mentioned observations. This includes the increase of the unemployment rate from an average of 3.5 % in the 1980s to 5.7% in the 1990s and to 6.7% in 2000-01 due to the bitter structural adjustment pills of the IMF.

The strict austerity measures demanded this time by the IMF are bound to devastate the living conditions of working people and the poor. Tough fiscal measures such as imposition of more and higher taxes, withdrawal of tax exemptions, increases in energy tariffs, elimination of energy tariff subsidies and privatization of public sector enterprises would strongly hurt the poverty-stricken people of Pakistan, who would have to brace themselves for greater hardship in the coming years. In a nutshell, any new engagement with the IMF will have negative implications for the people of Pakistan. Pakistan’s external debt may jump to $103.4 billion by the end of current financial year, pushing it close to 70% of GDP by 2023.

As the Pakistani public is well aware of by now, crisis interventions by outside donors are no more than a stopgap solution to what has become a chronic problem. What Pakistan needs at this juncture is debt restructuring from all creditors in order to give its ailing economy a breathing space for a fresh start. One of the economists and member of the Economic Advisory Council, Dr. Ashfaq Ahmed has advised the government that Pakistan must learn to live and survive without the IMF.

For a sustainable solution, besides a crackdown on corruption and implementing a progressive taxation system, the most important thing is the accountability of the previous loans. If the new government is able to reduce corruption, plug leakages and improve the taxation system of the country, it is hoped, Pakistan will be able to divorce debt dependency in the coming years. This is only possible if the new leadership of PTI dares not only to express, but implement the political will that it has been declaring before coming to power. The people of Pakistan have high hopes in Prime Minister Imran Khan.

Parallel to that, an independent parliamentary debt audit commission, is needed to determine what loans were used for, whether the people of Pakistan have benefited and to help ensure that any future loans be used responsibly.

Abdul Khaliq

CADTM Pakistan