While availing the IMF bailout, are we sincerely committed to giving ourselves a fair chance at being ‘bailed out’ of the economic and allied crises at hand? That is a question we should be asking ourselves. Hailing the $7bn fund facility from the IMF, while believing it will fix all our issues, without honestly playing our part to make the process a success, is not only self-defeating but also self-deceptive. That is why amid our never-ending politico-institutional confrontations and power tussles, we may lose yet another opportunity to put the country on the right track, unless we resort to a rigorous and sincere course correction.
Though the IMF deal comes with stringent conditions, like always, the impression created by our authorities is that with the IMF deal secured, the worst of the country’s economic challenges are over. This time around though, as an Ipsos Pakistan survey indicates, the populace is not be taken for a ride so easily. Repeated exposure to similar economic boom-and-bust cycles and the familiarity of the IMF’s recurrent bailouts and successive governments’ euphoric claims seem to have made people wary and wise. They can discern that the real task lies ahead in the form of complete and sincere implementation of the programme and the adoption of subsequent measures for long-term stabilisation. Going by past performances, this seems unlikely, considering that the programme’s requisites were hardly ever carried through, every time the multilateral donor attempted to bail us out of our monetary misery.
A September 2024 Ipsos opinion survey has found that 89% of people in Pakistan feel that the country is headed in the wrong direction, reflective of a drastic decline in national optimism. And while economy remains the dominant worry, according to the survey, concerns about rising electricity prices and taxes have intensified in 2024, highlighting growing concerns surrounding the rising cost of living. Eroding economic confidence has led to 9 out of 10 Pakistanis lacking confidence in the country’s future, as they harbour meagre hopes of any overall improvement in the coming six months, at least.
And it is not as if events unfolding around us are pointing in a different, more optimistic direction. The short-term, self-sustaining fixes and parallel structures put together in haste are not the same as long-term, sustainable structural reforms that we ought to be implementing. But instead of reforming and repairing, the authorities single-mindedly focus on their own survival, coming up with shoddy, self-serving parallel systems under the guise of reforming the incumbent ones.
Following the IMF approval of the $7 billion Extended Fund Facility, Pakistan will receive its first tranche of $1.1 billion soon. The IMF has also linked the disbursement of subsequent tranches to a set of tough conditions that include fully taxing the agriculture sector, real estate and the retail sectors. The multilateral lender also wants a cut in the size of the federal government and intends to keep a direct eye on the expenses of the provincial governments, something that will require intensive belt-tightening measures by our governments so used to their loaded and lavish lifestyles.
Whether Pakistan can ensure compliance on the above politically sensitive and potentially passionate issues, depends on how genuinely our ruling class shuns its self-centred and myopic attitude and commits itself to really pulling the country out of the economic crisis.
Pakistan will hardly be able to get out of the current debt trap during the tenure of this IMF facility, let alone make this the last time we turn to the IMF, unless we religiously follow the requisites to put the economy on track
The current $7bn EFF is the 25th opportunity for us to make amends for having missed on and messed with the previous 24 opportunities to put the country on the right track. Unless we are already looking to the 26th bailout, all political parties, including the Powers That Be, should work in harmony for urgent economic revival and the country’s resuscitation.
After granting approval to the $7bn EFF, the IMF board noted that despite notable macroeconomic stability, “Pakistan’s vulnerabilities and structural challenges remain formidable. A difficult business environment, weak governance and an outsized role of the state hinder investment, which remains very low compared to peers, while the tax base remains too narrow to ensure tax fairness, fiscal sustainability and meet Pakistan’s large social and development spending needs. In particular, spending on health and education has been insufficient to tackle persistent poverty, and inadequate infrastructure investment has limited economic potential and left Pakistan vulnerable to the impact of climate change.”
For Pakistan to address these issues and make the best of the programme, economic revival must not be viewed in isolation of other realities and factors that may lie outside the economic realm but grossly affect its well-being. As noted by the IMF, good governance, widening of the tax base and prioritising human capital by investing in health, education and poverty alleviation are imperative for the programme to make its full impact. And unless the establishment’s role is also geared towards full implementation of the programme, the latter will continue to produce new controversies and reignite old ones, while handling of the economic issues smoothly will remain elusive.
Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb have - quite quixotically - expressed on multiple occasions the desire to make this IMF loan Pakistan’s last. But Pakistan will hardly be able to get out of the current debt trap during the tenure of this IMF facility, let alone make this the last time we turn to the IMF, unless we religiously follow the requisites to put the country on the pathway to progress.
Promoting a culture of political tolerance, refraining from bulldozing self-sustaining amendments hurriedly through the parliament, acting constitutionally and accepting the verdict of the apex court - even if it means paltry political loss for those in power and not silencing dissenting voices by labelling them as security threats - will all go a long way bringing economic stability to the country.
Saudi Minister for Investment Khalid Bin Abdul Aziz Al Faleh, during his three-day visit to Pakistan this week, expressed willingness to enhance investments in Pakistan, as Islamabad and Riyadh signed 27 MoU agreements worth around $2.2 billion in various sectors. The PM assured the Saudi minister that the MoUs signed would be fully materialised and there would be “no delay or red tape-ism” in the implementation process, something that we really need to ensure.
The Saudi delegation also visited the SIFC, which was created by the previous coalition government to attract investments in energy, information technology, mining and agriculture by supposedly fixing the regulatory regime and ensuring policy consistency. But our reserves can’t be built without boosting private investment - and the concerns of private investors from the Persian Gulf countries are still relevant. With looming militant threats, economic turnaround will be elusive as the menace discourages foreign investors. With the army’s involvement in the SIFC, though, analysts feel that official investment from the Gulf would witness an upsurge.
However, in November 2023, after the formation of the Special Investment Facilitation Council (SIFC), the IMF cautioned that the civil-military platform would favour certain investors and advised Pakistan against creating a group of preferred investors under the SIFC, to ensure transparency and accountability in its business deals. The IMF has again warned Pakistan on the scope and success of SIFC in a chapter in the IMF’s 10 October 2024 report on the $7 billion Extended Fund Facility.
In this report, the lender also remarks that Pakistan’s banking sector “holds the world’s largest proportion of government securities relative to its total assets”. The IMF warns that the deep-rooted nexus between the government, the State Bank and the banking sector is harmful for the country’s economy, as this relationship can lead to “conflicting policies and regulatory challenges.”
All of this makes it crystal clear that playing our expected part in making the IMF deal a success is as important as the securing of the deal itself, which should not involve undue burdening of the poor, but should instead be focused on collecting dues from the privileged and the powerful.