By Majyd Aziz

It was in the month of June 2013 and there was a flurry of activities in the meeting rooms in Hotel Serena Islamabad. People moving in and out, some huffing and some puffing, some with red eyes and some with tousled hair.

At first glance, it seemed that some company was holding job interviews. As we watched this coming and going, I saw a very senior officer of the Finance Ministry come out of one of the rooms. When we asked him about this hustle bustle, he revealed that staff negotiations were going on between IMF and Ministry teams. He added that it was just like a classroom in a Junior High School and the team from Washington were in fact treating them as school students. The outcome, of course, was that Pakistan received a $4 billion Extended Fund Facility. Fast forward to 2024, Pakistan has again gone through what should now be termed as a “ritual”, a scenario going on since 1958 when the nation secured the first IMF bailout amounting to $25,000. The stakes now are high and the conditionalities of IMF this $7 billion, 25th time, are more drastic. But then, what can a country do when lessons are not learnt, when profligacy and extravagance are normal features in Federal and Provincial governments, when decision makers consider the loan as raffle winnings, and when these financial wizards have to per force ensure compliance of the conditionalities, all they have to do is to keep on increasing the rates of utilities, send out income tax notices that have zero impact, set up task forces to ensure fast track privatization of SOEs, and hype up the determination to reform whatever needs to be reformed.  And, naturally, the mantra that it would be the last time Pakistan knocked at the hallowed portal of IMF. Does the man on the street really understands what IMF is and why the euphoria hyped up by government spokespersons and whoever is the Finance Minister of the day when IMF approves the loan? Does the man on the street actually realizes the why and what of bearing galloping inflation of items of daily use, depreciation of the currency, looming job loss, back breaking increases in rates of utilities, and the media and businessmen raving about the PSX Index? Does the man on the street comprehend the mechanism of IMF funding and why he is confused when the government mouthpieces promote IMF loans as crucial for the nation’s progress whereas in his opinion and experience, the aftereffects have always been economic, social, and political instabilities? Pakistan keeps losing the financial battle. The nation was at the brink of default in 2023, and the pundits were comparing Pakistan with the Sri Lankan default. During this dark moment in the financial history of Pakistan, the “benevolent” IMF bestowed a stopgap arrangement that averted the default. However, the financial  managers took this as an invitation to observe the ritual and apply again.

They were faced with the ominous burden of balance of payments, the unstoppable downward slide of macroeconomic indicators, the drain on resources due to an exorbitant energy bill, and the mother of all evils, the hemorrhaging of money by stateowned enterprises. No one had the courage to put a brake on all these because politics took the front seat by pushing pragmatism way back. This political mindset is the root cause of the economy being at the precipice for decades. And this is one prime reason for going for the loans despite the tough conditionalities. The economists and financial experts, alongwith many from the private sector, are of the opinion that the IMF prescription is focused on revenue generation and not on spending. This sort of “hands-off” policy of IMF allows successive governments the leverage to indulge in political patronage (mostly through pork barrel projects that are notorious for large scale misuse and misappropriation), white elephant projects (another mode of wasteful extravagance), and stuffing government departments, ministries, state owned enterprises, etc, with human resources (hired generally because of political affiliation and rarely on merit). The dithering, dillydallying, and dawdling displayed by the Privatization Commission, tasked with fast track privatization or disinvestment of SOEs, is mainly to perpetuate political patronage despite the flagrant hemorrhaging of financial resources. Will the expected $7 billion open up the floodgates for more political employment, more non-essential outlays, or more unnecessary subsidies to the elite capture? Likely. The World Bank in its latest report, “Pakistan Development Update” noted that although the economy is showing signs of recovery, it is not sustainable and would not address reduce poverty which is now over forty per cent. It described the worsening human development situation as a “silent, deep, human capital crisis.” Princeton economist Atif Mian warned that Pakistan is facing an unprecedented financial crisis driven by a complex web of challenges. He enumerated the convergence of skyrocketing domestic and external debts, unsustainable pension liabilities, and a failing power sector as critical factors plunging Pakistan into an economic abyss.

He as well as some economists talk of three critical “doom loops” faced by Pakistan. The fiscal loop that is paying interest on loans as well as pensions, the external loop that is the huge gap between imports and exports, and the confidence loop that is disillusionment of youth, the low foreign direct investment, and lack of trust in the pillars of state. Ms Sharan Burrow, the Former General Secretary of the International Trade Union Confederation and a person that this writer greatly admires, very meaningfully stated that “it seems evident that the IMF has learned nothing from its inequality-inducing policies during the 1980s debt crises in Latin America nor from its recession-deepening response to the East Asian crisis of the late 1990s. In both regions, the IMF has become synonymous with making bad situations worse.” It is also worthwhile to agree with American economist Steve Hanke who stated that “why is it so hard for the IMF to understand that putting out the fire comes before fireproofing the building?”  

(The writer is former President of  Karachi Chamber of Commerce and Industry)