Pakistan is home to over 200 million people and has been suffering from a variety of financial and structural challenges; for that reason, it continues to seek IMF bailout and has had many in the last four decades. We are addicted to IMF’s bailouts.
With every bailout hosts of conditions come, ostensibly meant for reforms, leaving us in a deeper economic quagmire. Pakistan has imported more than it exported, and the result is a swelling current account deficit at the present estimated at a good percentage of gross domestic product, and an alarming balance-of-payments crisis.
For decades, real per capita income growth has underperformed; corruption and tax evasion remain unbridled, resulting in much-reduced revenue for the state. Less than one percent of Pakistanis, for example, pay income tax. State resources are also regularly wasted. Allocation of resources for more fruitful goals like education and healthcare has been insufficient.
In addition, the country faces a persistent energy crisis, resulting in regular power outages. The economy is extremely at risk of changes in international crude prices, as fulfillment of most of its oil requirements takes place through imports. The unnatural climb in oil prices has aggravated the nation’s delicate financial condition.
Quite a lot of state-run firms are running at a loss and there appears to be no development for their privatization and no measures for cutting bureaucratic red tape and perking up the environment for doing business. There is serious pressure on the nation’s currency, with the Pakistani rupee falling by quite a big percentage.
Foreign exchange reserves are also falling quickly, hardly enough to cover Pakistan’s debt payments. Every time Pakistan finds itself in such a situation, it knocks on the doors of the IMF. As the price for a deal with Pakistan, the IMF has continuously been demanding further tightening of fiscal and monetary policy as well as structural reforms to generate more revenue and improve the business environment.
The concerned authorities do not seem serious about focusing on Pakistan’s economy and moving away from superficial economic management to deeper reforms. More than a few argue that the worsening balance of payments is a consequence of higher import expenditure. Owning up that Pakistan needs more infrastructure development, the economists continue to caution that it is imperative that the design of the projects be solid and the country must avoid excessive debts that we are unable to repay.
One of the implications of Islamabad’s move toward the IMF was that Pakistan had to be far more transparent about the lending terms of its projects than it has been so far. This transparency may have positive implications in terms of producing public support for renegotiating some deals, which are not advantageous for Pakistan.
There are several easier-said-than-done steps; the government will have to take to pull Pakistan out of its economic despair. Dealing with tax evasion and broadening the tax base by doing away with tax loopholes and exemptions are demands of the day. It will also have to privatize some loss-making and unproductive state-owned firms, which are a major hindrance in the way of improving the economy.
Restructuring the product and labor markets, in particular the energy and agricultural sectors will also have to be high on the agenda. In addition, the Pakistani rupee has to be fairly valued, flexible, and market-determined. If the government manages to push through at least some of these measures, it could considerably lift Pakistan’s development pace.
Even if an apparent delay in growth looks probable over the coming year, Pakistan’s longer-term prospects should improve if the IMF bailout package leads to a sharp fall in the dear motherland’s external liabilities and a visible improvement in its business atmosphere.
