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October 23, 2019

Structural reforms


October 23, 2019

The IMF continues to peddle the same mantra: that Pakistan needs to undertake structural reforms. This begs the question: what exactly has been going on since the last three decades — or at least the last year? Since the IMF has been funding structural adjustment projects in Pakistan from the early 1990s, perhaps it is time for some honest reflections from the Fund over what part of programme has worked and what has not in Pakistan. Even now, we continue to be told that the fault lies in how Pakistan has acted, not in the conception of the IMF programmes. Only this week, the IMF Middle East and Central Asia Director Jihad Azour spoke about how structural reform and strengthening institutions could make Pakistan’s economy competitive. But it would not be wrong to state that since Pakistan has been following the IMF mantra, its economy has gotten less competitive. Over the last year, the Pakistani economy has actually contracted and shown little signs of recovery. This would seem to go against the view that such programmes strengthen the economy in the long term. While Pakistan continues to show improvements on the IMF metrics, the overall health of the economy appears to be getting worse.

What has often led most to confused analyses is not understanding the difference between the health of state finances and the health of the economy. The two are not the same thing. While there is improvement in state finances — although that remains questionable given the rise expected in the fiscal deficit — one cannot say the same about the economy. The high inflation, low growth situation that exists today are not metrics associated with a healthy economy. Much of the IMF reform remains focused on the state, for example, strengthening the position of the federal government vis-a-vis the provinces in tax collection. This would do nothing to improve the actual economy.

What does need to be addressed are the problems in the energy sector, for which the IMF has actually not provided any concrete workable solutions apart from price hikes. With another IMF mission set to arrive in Pakistan for two weeks, it is perhaps time for some serious thinking. All stakeholders need to take stock of what in the programme is working — and maybe change the prescriptions that are not doing well. Due diligence should apply to both sides. We cannot forget that the mantra of ‘all is well’ from the IMF was repeated often till Ishaq Dar remained finance minister. The same mantra continues to be repeated by the IMF officials in charge of the current structural reform package. This realisation does little to assure the public that all is indeed well.

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