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February 18, 2020

Growth dream cutting masses to the bone


February 18, 2020

LAHORE: Every government that gets engaged with the International Monetary Fund (IMF) feels elated when it gets endorsed by its staff after quarterly reviews. Cash starved governments need this approval for continuation of the IMF programme and more importantly to get more loans from elsewhere.

This is a global trend, but it is very rare that a country comes out of the woods after the end of the programme. The population of that country goes down a notch or two in poverty, hardship and miseries.

In recent history, the last four successive governments have gone for IMF bailout packages. Barring the IMF programme approved during the Pakistan Peoples’ Party’s 2008-13 tenure, which was abandoned after few tranches, the IMF board and staff has been very positive about the implementation of each programme.

If you go through the staff reviews given during the Shaukat Aziz era, you will find a number of similarities in the subsequent staff reviews given during the last Nawaz government. And now we are witnessing the same rather more intensive approval of Pakistan’s economy in the IMF staff reviews.

During the Shaukat Aziz era, the IMF reviews suggested that we have adopted a sustainable growth path and the economy was stable. However, barely six months after that government was booted out through election, Pakistan’s economy was in dire states.

The IMF entered a programme with the new government, but then stopped its financing. The economy was in doldrums when the programme was launched, but the then government refused to accept the therapy for cure recommended by the IMF.

Still that government managed to increase growth from one percent in its first year to 3.3 percent in its last. The next government also sought IMF help that was promptly provided.

This time around the then finance minister Ishaq Dar coined the term home grown formula, given to and accepted by IMF. This was the first IMF programme that was completed by any government.

All the quarterly staff reviews showered praise on the way the economy was moving in the right direction. In fact, it predicted a GDP growth of six percent in 2017-18, and higher in 2018-19 as a result of sound economic policies pursued by that government.

Pakistan did manage to record a GDP growth of 5.5 percent during the last year of the Pakistan Muslim League-Nawaz government. The IMF staff in its quarterly reviews never pointed out the dire need to devalue the rupee.

In comes the Imran government and with it goes the economic stability that was touted by the IMF a few months earlier. After IMF was contacted as a creditor of last resort in March 2019, the first advice that the IMF gave was to devalue the rupee.

In fact its reports blamed the previous regime (that it had regularly been praising a year back) for keeping the rupee overvalued. The new Advisor on Finance Dr Hafeez Shiekh again applied the formula of home grown remedy and agreed on an ambitious revenue increase programme setting unprecedented targets (now he is requesting the IMF to lower the revenue collection target).

His then finance secretary was so disgusted by the complete surrender to IMF that he stayed away from the final negotiations, despite being present at the IMF headquarters.

Egyptian model is touted as a rare success after the induction of the new governor of the State Bank of Pakistan, but that country is mired in debt and its citizens’ sufferings have increased.

The IMF recipe might work in the long-term but this dosage is recommended in countries that are in dire financial state; and because of that the public at large is finding it hard to survive.

When the IMF formula is applied it further marginalises the already poor masses. Every step taken to correct the problem creates a nightmare for them.

It is worth noting that 5-10 percent of the population has the capacity to absorb the IMF shocks and another 30 percent manages to survive by lowering their living standards and quality of life. An overwhelming majority in medium low income countries like ours have nothing to fall back on. To survive each shock they have to do away with some essential expenses.

Since their first priority is to feed their families, they allocate most of their funds for food. Whatever is left after food expenses is then spent on shelter, utilities, health and education.

Shelter is their first priority and education the last. Around only 20 percent of the population manages to fulfil these essential needs; though they compromise on quality of food, shelter, utilities and health and education.

They have no choice over the utility bills that they have to bear on actual consumption. The miseries inflicted by the current programme are unbearable. The economy might improve after 5 years, but there would be few survivors to enjoy the fruits of progress.