In the recent times it is observed by some of our national economists, policy makers, government official that Pakistan would be unable to survive if it does not seek the International Monetary Fund’s help. Although, it is no less than a delusion keeping in view the economic standing of our nation.
These thinkers were of the opinion that Pakistan’s financial ranking will catch by re-entering an IMF programme. Indeed, the situation is altogether reversed, it can be improved, if we show the will for better management of our economic and financial affairs. Without, knocking at IMF Pakistan still possess the capabilities to generate more funds. If we view the historical episodes for Pakistan’s IMF programme they are harsh, rather than a sigh of relief for the masses at large. They had at many instances badly affected our economic potential. The major ills attached with this programme is the devaluation of currency, rapid increase in energy and electricity charges, liberalization of imports and increase in interest rates.
With the devaluation of currency there is a gradual increase in the foreign loan servicing in the rupees which further translates into inflation and it ultimately routes to higher prices without any gains. Likewise, there is a trade deficit as the raw material of imports for manufacturing becomes costly that further routes into making export goods expensive. For instance, in the last programme there is an increase in raw cotton import prices which has badly crushed the Pakistani textile sector.
Moreover, with every passing year Pakistan is experiencing an increase in gas and electricity rates that have already make life difficult to live for the general public at large. Furthermore, liberalization of imports has also exhausted our economic overlook and industrial productivity. Despite the heavy trade deficit experienced in the past 70 years of economic history the newly launched mini-budget still did not focus on shrinking the level of imports. Thus, further liberalisation via re-launching the IMF programme will be no less than a nightmare. In addition, Pakistani economy is in need of low interest rates rather than high. The existing 8 percent lending rate by the State Bank has affected the industry and if interest rate further increases it would be a clear indication that only few firms would survive.
Besides this, it is a time consuming and slow process to recover the stolen money but yet there is hope to have few billion dollars in Pakistani reserves in the upcoming years. In addition, very few state-owned enterprises have been privatized which requires another immediate action. The remaining government share holdings in the organizations should be sold off to raise few billion dollars within a short interval. It will be added as a positive boost to our current stock exchange which has been badly affected with overall prevailing economic situation.
The likely costs suffered by having another IMF bailout, will translate into a slowdown of the economy rather than acceleration. The IMF recipes and their limited ingredients have hardly performed well in any of the countries where assistance was provided in the past
Pakistan as a nation needs permanent solutions to all the problems rather than finding a temporary prescription from IMF. Our economy needs to focus on improving the level of exports and to narrow down imports. As discussed in my previous articles as well, we need to work on tax policy reforms which are promising and encouraging for our industrial sector and provide them with a sigh of relief. Likewise, the banking sector needs to have technology up gradation in a way that it can exactly compete with the Hawala system prevailing in our roots. Moreover, Pakistan has great potential, it only needs facilitation.
Thus, we as a nation have to forget whether IMF is a friend or either foe. The main agenda on the table is to decide the options. We have to closely cross check what we require and what the other party is demanding from us in return of financial assistance. We have to rightly weigh the costs and benefits. The likely costs suffered by having another IMF bailout, will translate into a slowdown of the economy rather than acceleration. The IMF recipes and their limited ingredients have hardly performed well in any of the countries where assistance was provided in the past.
Pakistan has no other option but to borrow money to run its economic endeavours successfully but for that it is not necessary to knock IMF only we can seek assistance from our friendly alliance countries like KSA and China. As we all are well aware that IMF will not fix our current account deficit, neither is it going to improve our exports nor will it provide relief to our capital markets.
Moreover, with high domestic liquidity at hand raising interest rates is also not the viable option. Therefore, IMF could be taken into consideration when our friendly alliance countries have not extended hands to rescue us in the hour of need. If we as a nation unite and show improvement in the next one year then more friends will join hands and would be ready to invest in our country. If we manage to tackle our problems with our own resources and not IMF then in the near future our economy will be viewed as an epic tale of an astounding economic turnaround. We have to prove our all capabilities with conviction and by religiously practicing the policies and reforms.
The writer is Master Trainer/Advisor in PITAC, Lahore and Foreign Research Associate (Centre of Excellence, CPEC, Islamabad)
Published in Daily Times, November 30th 2018.