National and International Issues

The Need for Comprehensive Policy Reforms, Not IMF Bailout

Not only are there more than ten reasons as to why Pakistan should not seek IMF bailout this time around, but also more than ten ways as to how Pakistan can avoid it. Historically, the IMF and other Bretton Woods Institutions such as the World Bank, which are part of the so called rule-based international order post Second World War, were meant to perpetuate the domination of the Western capitalist powers on the rest of the world. This objective was to be achieved through micromanaging the economic policies of the newly decolonized countries. 

It is a folklore that Pakistan was approached by Japan for a foreign exchange loan in the early 1950s. Pakistan lent Rupees 120 million (as per the foreign exchange rate of the time) to the Federal Republic of Germany and refused to claim any reparations for the casualties during the Second World War, suffered by the soldiers belonging to the areas comprising Pakistan in 1947. Come 1954, after Pakistan became a part of the World Bank Group the country was gradually converted into a ‘Pauper State’ owing to the wrong economic policies. Pakistan was projected as a role model of development in the 1960s, but it was hardly disclosed that it was foreign aid that was behind this bubble. Compared to 1% in 2018, Pakistan met 90% of its development needs through foreign aid in the 1960s. The disjointed economic priorities cost Pakistan heavily in terms of social, political and economic costs, leading to its dismemberment by separation of former East Pakistan in 1971. The rest is history.

In Pakistan, come election time, the international financial institutions (IFIs) henchmen in general and IMF hitmen in particular become hyper active promoting the Washington Consensus agenda of compelling the developing countries like Pakistan to follow their economic ‘mantras’ under a so-called IMF Bailout Program, irrespective of its need or ground economic realities. The domestic media and their local agents get into full gear to sell the “narrative” of IMF bailout as the only option, failing which would mean heavens would fall. This template has been perfected through repetition particularly in case of Pakistan, regardless of the nature of political setup, the political party in power – on the problems confronted by the country. The very reason behind seeking out the IMF bailout is the shortage of foreign exchange to service debt obligations due to rising current account deficit in view of heavy trade deficit and inadequate foreign remittances and foreign investment. Case in point being Pakistan’s external debt liability which was upward of USD 40 billion at the end of 2008. This debt rose to a whopping USD 90 billion in December 2017. This stark rise was the result of not heeding the warning of the economists who predicted that Pakistan’s external debt would reach USD 90 billion in 2019. 

In a way, Pakistan is forced to take loans from IMF under stringent conditions by introducing austerity measures each time, thereby subverting its economic growth. The process has been repeated many times not because Pakistan has needed it, but it has been compelled to move along this route in order to ensure that its economy does not take off. Why? Because Pakistan’s economic take off is seen to be against the long-term strategic interest of the Western powers who would like to promote India’s domination in South Asia. The strategy to achieve this objective has been implemented in various ways. First, ensuring Pakistan returns to IMF every five years. Second, Pakistan has been subjected to economic sanctions, duties, quotas, market discriminations on its exportable products, particularly textiles. Third, imposition of travel advisories for their businessmen/investors not to travel to Pakistan on one ground or another. Fourth, issue of adverse ratings and ranking by agencies/bodies. Fifth, propaganda and media hostility citing political reasons. Sixth, denial of advanced technology and knowledge transfer on flimsy grounds. Seventh, dedicated efforts by the Western governments to create conditions of instability, through their intelligence agencies. Eighth, creation of misgivings among the nations friendly with Pakistan. Ninth, exploiting every opportunity and gap in Pakistani society to generate chaos and anarchy. And tenth, employing online tools and interference to ensure Pakistan has an incompetent regime, leaving behind a worse economic situation than its predecessor. Pakistan’s economic downslide has been maintained in this way over the past seven decades. Every regime has left far greater problems for its successor than what it inherited on its assumption of office. As a result, Pakistan’s relative ranking in the community of developing countries has kept deteriorating. Albert Einstein had described this process as ‘inanity’. In his words: “You cannot get different results by doing the same thing over again and again.”

In Pakistan, both the planning process and development paradigm need a ‘course correction’. Seven decades is a long enough period for committing mistakes. It is high time that we learn some lessons, too. This is an existential question for all of us. History teaches that those who do not learn from their mistakes are bound to repeat them and those who do not learn from history become irrelevant. Both the development model and the planning process have been failures, making Pakistan as among the biggest ‘losers’ in the era of globalization. Nations who were behind us and sought our advice and expertise have left us far behind. It is useless to quote specific comparisons in this respect, as it is an established fact that Pakistan has lost considerable ground in comparison with its peers, e.g., South Korea, Malaysia, Turkey, Indonesia and China etc.

Pakistan cannot and should not take the beaten track once again under the new circumstances. This is only possible if comprehensive economic reforms are undertaken in governance, taxation, civil service, agriculture industry, higher education, energy, foreign trade, SEZs, maritime, ease of doing business, rules and procedure, rule of law, merit and legal system etc. Enough precious time has been lost without serious reforms. For CPEC’s success the only remaining time is between 2018-2020.

Now is the time for Pakistan to make hard choices. For seventy years, Pakistan has had a system of government that served faithfully the interests of the East India Company, IFIs, (Bretton Woods institutions) and Washington Consensus. The existing system of governance in Pakistan has promoted the flight of capital, brain drain and perpetual instability. It does not allow change or policy reforms from within. The elite keeps its own money abroad and expects the foreign investors to invest. The elite benefits enormously from the existing system of governance by maintaining their offshore accounts in Western destinations. Pakistan stands at historic crossroads in 2018. A real mindset change is needed for moving away from a ‘Colonial State Paradigm’ bequeathed by the East India Company and consolidated by the Bretton Woods System and Washington Consensus. The Western powers have been promoting their system of governance for impoverished, illiterate and underdeveloped countries, by strengthening the hold of the 1% elite as long as they stash their loot and plunder in offshore accounts.

The Westernized native ruling elite drew electoral support from feudal and tribal constituencies. They have a negative attitude to development, except which serves their own narrow interests. The Western powers, on the other hand are busy promoting the fifth generation hybrid warfare promoting cynicism, nihilism and negativism, in order to break the will of the general population. Pakistan hence confronts an existential crisis in which the pillars of the State, the armed forces, the judiciary and the civil services are all under attack by foreign agents. Pakistan is a very ‘porous’ society. IFI henchmen, IMF hitmen and undercover agents are found in large numbers, even in responsible policymaking institutions. Their job here, like everywhere else, is to ensure widespread systemic failures in order to prepare ground for color revolution, proxy war, insurgency and finally coalition missile strikes. From North Africa, Balkans and Middle East to West Asia, the Western powers have only perfected this template. Pakistan is humming with foreign agents now with some of them holding dual citizenship as their protection of last resort in return for their services. Pakistan has a history of missed opportunities in achieving economic take off. Many times in the past decades, we have come pretty close only to be averted and subverted at the hands of traitors and the interference by their external sponsors. 

In Pakistan, both the planning process and development paradigm need a ‘course correction’. Seven decades is a long enough period for committing mistakes. It is high time that we learn some lessons, too. This is an existential question for all of us. History teaches that those who do not learn from their mistakes are bound to repeat them and those who do not learn from history, become irrelevant.

Nations who were behind us and sought our advice and expertise have left us far behind now. It is useless to quote specific comparisons in this respect, as it is an established fact that Pakistan has lost considerable ground in comparison with its peers, e.g., South Korea, Malaysia, Turkey, Indonesia, China etc.

IMF bailout is not the only option as it is deliberately made out to be. For Pakistan, the current account deficit has been self-perpetrated by lax monitoring of policies by state institutions which allowed liberal imports of consumer items, throwing the trade balance into a spin. It was quite late by the time the import curbs were imposed. The failure of the exports to keep pace with imports have only worsened the situation. Exports are expected to fetch merely USD 23 billion: Foreign Direct Investment of USD 3 billion and foreign remittances worth USD 20 billion. With foreign exchange reserves at USD 11.4 billion with the State Bank of Pakistan, the devaluation of Pakistani Rupee by 10% has only worsened the situation.

Pakistan hence would need an injection of only USD 7 to 10 billion to meet its current account deficit and debt obligations in 2018-2019. This financing gap can be met however in the short term in a number of ways, instead of seeking an IMF bailout. This includes implementation of both short term and long term measures of tax reforms, import curbs on consumer and luxury items, assistance from bilateral donors, seeking financial assistance from Islamic Development Bank, Currency Swap Agreement with China, issuing of Renminbi bonds, utilizing the lending option of China-led Asian Infrastructure Investment Bank (AIIB), mobilizing investment from overseas Pakistanis, issuing Eurobonds, deferred payment for petroleum imports, using the option of barter trade etc.

For once Pakistan should say ‘No’ to the IMF and regain  control of its own destiny. The implementation of 22 early harvest projects worth USD 19 billion under China-Pakistan Economic Corridor (CPEC) is a good omen. The CPEC, worth USD 62 billion (and still evolving) is a strategic project of national and international importance. CPEC is a means to an end i.e., financial and economic take-off of the Pakistani economy. By resolving supply side constraints such as energy and infrastructure, it has put Pakistan on a higher growth trajectory. The real potential of CPEC is to ensure through the development of Special Economic Zones (SEZs) a 7 to 8% GDP growth rate for 15 years. Nine of these zones out of 33 have been prioritized to host the re-located industries and factories from China. The delay in the development of infrastructure and utilities in these SEZs are holding up further action which could have been averted if the National Logistics Cell (NLC) or Frontier Works Organization (FWO) had been tasked to do it.

Pakistan cannot and should not take the beaten track once again under the new circumstances. This is only possible if comprehensive economic reforms are undertaken in governance, taxation, civil service, agriculture industry, higher education, energy, foreign trade, SEZs, maritime, ease of doing business, rules and procedure, rule of law, merit and legal system etc. Enough precious time has been lost without serious reforms. For CPEC’s success the only remaining time is between 2018-2020. It is obvious that the gigantic size of CPEC for a country that used to dole out a billion dollars or two at the maximum has surprised everyone. Despite the detractors at home and hostile powers, CPEC is gradually becoming a reality. Our Chinese friends are committed to implementing the CPEC in its entirety. The CPEC worth USD 62 billion is evolving and expected to touch USD 100 billion by the completion date in 2030.

The question however is why Pakistan continues to move into circles. The simple answer is that the colonial governance system has made Pakistanis hooked to their former slave master’s narrative. The decline of the Western power’s influence in the world and the insecurity that CPEC generates among the Indians are easily ignored by our liberal elite. Hence, Pakistan needs to move away from the “Colonial State” paradigm, since for 70 years it has been made it to run on the runway, without take-off. No wonder the Western powers and IFIs which have held Pakistan hostage for seven decades do not wish to let it take its economic take-off, CPEC or no CPEC. The greatest challenges for Pakistan today are weak leadership, absence of collective wisdom, solo flight approach, indulgent elite, Colonial mindset, low intellectual capital, emotionalism, porous society, presence of IFI hitmen, weak institutions, absence of rule of law, merit and justice, political instability etc.  In my view, Pakistan’s emergence as an independent state was a miracle, so is its continued existence. Only a miracle can make its dream of economic take-off come true, given the heavy odds. It calls for no less than a paradigm change in our nation-building. Let us not try once again beaten individuals, beaten governance templates or beaten trajectory. Those interested in Pakistan’s future need to develop a synergy of action plans to save this country, before it is too late.


The writer has served as Pakistan’s Ambassador in Germany, Singapore and Mauritius. He worked in China for two diplomatic assignments for nearly a decade. He is the author of several books on China. Currently, he is Director Chinese Studies Centre, National University of Science and Technology (NUST), Islamabad.

E-mail: [email protected]

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