Wednesday July 24, 2024

How to break the IMF cycle

Our usual practice of getting an IMF loan and ignoring our structural problems will lead us back to the IMF’s door in a year or two

By Shahrukh Wani
August 31, 2022

In Pakistan, we are so used to firefighting that most days that is all that we talk about.

We don’t have enough money for imports, so we run to the IMF asking for a loan. Not asking why we can’t pay for what we buy and borrow from the world. Floods displace millions, so we pull together to rescue them (as we should). But, again, little on why we keep allowing construction on waterways. We can’t control the rain, but we could unclog the drains.

Yesterday, the IMF resumed its loan to Pakistan. Combining the IMF loan with investment pledges from Riyadh, Doha, and Abu Dhabi and some money from the World Bank, we have likely prevented the immediate balance of payments crisis. Great. If we hadn’t, things would have gotten much worse.

But we have just put the fire out. We have done nothing to solve the causes of the fire. Call it naya or purana, Pakistan right now doesn’t work. It not only doesn’t work for most Pakistanis, who either live in poverty or close to it, but it doesn’t work because it can’t sustain itself, so it needs almost consistent foreign help. ‘Painful adjustment’ means little when we have to go through it every three years.

Pakistan survives on the generosity of its allies and its ability to export people. We produce almost nothing that the world wants to buy. We prioritize cartels (sugar, real estate), over fair competition.

If we have a strategy, it is waiting for someone to invade Afghanistan so we can get money from them. Living on the kindness of strangers is a great line by Tennessee Williams, but a bad national strategy.

Such is our state that we are being left behind within our region. People in India and Bangladesh today live longer than Pakistanis, are more likely to be able to read and write, and have greater access to high-speed internet. They have become richer over the past few decades at a speed we can only envy. Pakistan is the sick man of South Asia, as my friend Uzair Younus says.

Today’s Pakistan is also untenable against global shocks. Climate change is the big one. We need infrastructure and systems in place that can reduce the negative impacts of higher temperatures, floods, etc. We aren’t prepared. Another immediate shock is the increase in global energy prices.

As we depend so heavily on imported oil and gas to keep the lights on, we need a way to pay for them. They’re now much more expensive because Europeans, who don’t want Russian gas, are out there buying all the gas they can get their hands on.

The realization that this must change has to set in -- and has to set in fast. Our usual practice of getting an IMF loan and ignoring our structural problems will lead us back to the IMF’s door in a year or two. The cycle will continue. Again, and again.

To change this, Pakistan must do what it hasn’t done before -- it must reform, meaningfully. It must change a system that subsidises firms that are barely able to export. It must deprioritize real estate as a national priority. It must give more power to local communities instead of trying to run a country of nearly a quarter-of-a-billion people through an anarchic bureaucracy.

Over the coming winter, ordinary Pakistanis will face skyrocketing inflation and low economic growth, and politics that is more about raw egoism than about the problems people face. All the while rebuilding communities devastated by floods.

We must also take steps to get our house in order. If we don’t either the world will give up on us, or the people will burn down this system. Neither outcome will be pretty. But neither will be unfounded.

The writer is an economist at the Blavatnik School of Government, University of Oxford. He tweets @ShahrukhWani