he economic crisis Pakistan has been facing in recent months is unprecedented. According to available estimates, Pakistan‘s external debt has reached $126.9 billion and the domestic debt $153 billion. To avert default, Pakistan must repay foreign debt worth $22 billion over the next 12 months and around $80 billion over the next three and half years. The State Bank of Pakistan‘s foreign exchange reserves are down to $2.9 billion, just enough to cover the imports for two weeks. Averting a sovereign default is looking like a formidable challenge.

The government apparently sees the IMF as its only hope. It is making a desperate effort to unlock the $1.1 billion from a $6.5 billion bailout deal which the IMF stalled because Pakistan failed to implement a set of measures agreed previously. Worried about a public backlash in an election year, the government had initially dragged its feet on implementation of the agreement. It has now approved steep raises (up to 113 percent) in the natural gas prices to recover Rs 310 billion in six months. The additional burden resulting from the recent tax measures and abolition of energy subsidies will come to Rs 736 billion. Another raise in petroleum prices (around Rs 32) will take the per litre price to around Rs 300.

The IMF packages have to be seen in a historical context. IMF programmes generally focus on addressing balance of payments problems, stabilising the economy and implementing structural reforms. Since 1958, the total volume of IMF financial assistance to Pakistan under various facilities and agreements has been around $25 billion, roughly $400 million annually.

Pakistan‘s ability to address its balance of payments problems is limited. It has rarely had a positive trade balance. Since 2004, it has been consistently registering a negative trade balance that reached $31 billion in 2022. A stable economy is characterised by low and predictable inflation, low levels of unemployment, steady growth in gross domestic product, a balance in trade and stable financial markets. Pakistan’s monthly inflation rate hit a 47-year high at 27.3 percent in August 2022 on a year-on-year basis. The rupee lost about 20 percent of its value against US dollar in two weeks after the authorities loosened controls on January 26. After 66 years of engagement with the IMF, Pakistan has been unable to put its economic fundamentals right.

Pakistan’s economy faces a number of structural problems, including energy shortages, taxation issues, poor infrastructure, limited access to credit, corruption, inadequate human capital and political instability. A persistent energy crisis has resulted in regular power cuts and reduced industrial output. A weak tax system makes for low revenue collection and a large informal sector that is difficult to tax. Limited access to basic infrastructure such as roads, bridges, ports, and electricity is hindering economic growth. A lack of access to finance for businesses, particularly by small and medium-sized enterprises, is hampering their growth. Corruption is widespread and undermines the effectiveness of government institutions, creating a negative impact on the investment climate. Limited access to education and healthcare and a shortage of skilled labour are restricting productivity and competitiveness. Political instability has created uncertainty for investors and hindered economic growth.

One wonders why the IMF does not insist on reversing the elite privileges amounting to $17 billion annually.

Pakistan has regressed on almost every structural indicator. It has been facing an energy crisis with regular outages and circular debts requiring continuous upward revision of energy prices. Only recently, Rs 952 billion was added to the country‘s circular debt. We have a narrow tax base most traders and farmers paying no direct taxes. Apart from a few motorways linking major cities, infrastructure has been in a bad shape. Corruption is widespread, and the accountability system is widely seen as tilted in favour of those on the right side of power corridors.

The IMF bailouts have been further burdening the masses. However, an elite capture of around $17 billion, as a UNDP report puts it, escapes its purview. The biggest beneficiary of Pakistan‘s elite privilege is a corporate sector getting around $4.7 billion in tax breaks, cheap inputs, high output prices, preferential access to capital, land and services. Other major beneficiaries are the country’s richest 1 percent, who own 9 percent of the country’s overall income, and large land-owners, who are 1.1 percent of the population but own 22 percent of all arable land. Though the UNDP report discusses each beneficiary group as a separate entity, there are many overlapping areas. For example, the report suggests that there are multiple stakeholders in the development and management of the urban real estate sector, which implies a larger share in elite privileges than the estimates.

The IMF also appears to be indifferent towards another development – the conversion of arable farmlands into housing societies that can have catastrophic consequences for food security. Lacking lucrative exports, Pakistan‘s only chance to ensure food security is though conservation of arable farmland and increasing agricultural productivity.

One wonders why the IMF does not insist on reversing the elite privileges amounting to $17 billion annually. One also wonders whether governments approach the IMF for bailout packages to use it as a ruse to further burden the masses.

A solution to Pakistan‘s economic woes seems to lie in addressing economic fundamentals. A dynamic overlapping of social, political and economic domains implies that economic problems cannot be addressed in isolation. A clear understanding of the power structure is a prerequisite for effective policy formulation. Understanding how power is distributed in society and who wields how much can provide the conceptual clarity on breaking the status quo. A never-ending cycle of political instability is not without a reason. Political instability generates hung parliaments with divided mandates that deny the governments the capacity to bring about the required structural changes. Breaking or replacing entrenched power structures is not easy. It requires a unified national vision. Making Pakistan a viable socioeconomic entity is probably as challenging as getting freedom from colonial masters.

The writer is an associate professor in the Department of Economics at COMSATS University Islamabad, Lahore Campus