ountries experiencing severe economic crises such as balance of payments problems, currency devaluation, high inflation and unsustainable debt burdens often end up turning to the International Monetary Fund for financial support. Pakistan has been facing all of these problems.

The IMF provides loans to help stabilise partner countries’ economies and restore confidence among investors and creditors. The countries that require assistance with implementing structural reforms to address underlying economic vulnerabilities and improve long-term economic prospects may seek support from the IMF.

The IMF can provide policy advice and technical assistance to help countries design and implement reforms related to fiscal management, monetary policy, trade and governance.

But the IMF loans do not come easily. The Fund asks the loan applicants to take corrective measures to streamline the economy. Most countries that act on its advice in letter and spirit overcome their economic troubles. Those that take half-hearted measures become frequent borrowers from the Bretton Woods Institution.

Pakistan was given reprieve by the IMF on 22 occasions in the past four decades. It looks like being addicted to the IMF treatment. Among 94 countries, Pakistan ranks as the fifth largest IMF debtor. This fact highlights the need to prioritise long-term structural reforms for achieving self-reliance and sustainable growth.

For the first- and second-timers the IMF has soft conditions. Following each satisfactory quarterly review, a part of the agreed IMF assistance is released. When the IMF is acting soft the debtor countries failing to implement the reform plans get easy waivers.

The waivers might also be influenced by political considerations. The United States has the most influence on the IMF on account of its monetary contribution to the Fund. It can influence the IMF to tackle a country leniently or strictly when approving a programme or releasing a tranche (quarterly part payment).

Being a frequent borrower, Pakistan was asked by the Fund during the PTI tenure to take certain upfront measures to qualify for the assistance. It started on the journey under Finance Minister Hafez Shaikh. The programme was half way through when Shaikh was replaced by Shaukat Tarin who refused to abide by some of the agreed conditions and the programme was abandoned. Within a few months Tarin had to renegotiate with the IMF for a fresh programme that had stricter upfront conditions including raising the prices of petroleum products, jacking up power and gas tariffs and collecting more taxes.

A timetable was also given for further quarterly actions to qualify for each tranche. During this period the government of Pakistan was given some respite on account of Covid-19 and an out of programme special loan of $1.2 billion was approved. After that the PTI government started ignoring the IMF conditions and subsequent IMF tranches were suspended. When the PTI leaders sensed that they might be ousted from power they announced a reduction in petroleum and power rates.

The coalition government that replaced the PTI was given a difficult time by the IMF that insisted that petroleum rates and power tariffs be raised beyond those agreed earlier as the rupee was depreciating fast.

Fearing a public backlash, the government delayed the action. In the end, its finance minister, Miftah Ismaeel, agreed to the IMF conditions and petroleum rates were raised by a hefty Rs 35 per litre; the power rates were also jacked up. The IMF also asked the government for new taxation measures after which a $1 billion tranche was released.

The best thing would be to take the necessary painful decisions before the dissolution of the government. If the reforms they initiate are not be reversed by the next government, those might pave the way for sustainable growth in Pakistan. 

At home, Miftah was severely criticised for succumbing to the IMF pressure. He was removed when Ishaq Dar returned to Pakistan. Dar initially took a different stance and refused to implement some of the IMF conditions. The IMF than stalled its support.

In the end Dar, too, was forced to yield to the IMF, which added several new conditions once earlier conditions were met. In the meantime inflation went through the roof, the rupee declined to a very low value and the State Bank policy rate rose to 21 percent (currently 22 percent). The foreign currency inflows dried up.

To avoid default on external obligations, the government squeezed imports through administrative orders. Even the promised assistance for flood victims was suspended and linked to the IMF nod. The foreign exchange reserves dwindled to below one month of the squeezed import bill. The industries started operating on low capacities because of shortage of imported raw materials. The exports too declined but that was mainly due to the global recession.

During this period Dar kept saying that Pakistan could do without the IMF programme. At the same time, he continued requesting the US ambassador to use his country’s influence in getting the IMF approval. Prime Minister Shahbaz Sharif too contacted the IMF chief many times and met him on the sidelines of a Paris conference on environment. However, the IMF insisted on prior actions.

Finally, all the IMF conditions were met and a staff level agreement was signed. Under the agreement, Pakistan will get $3 billion over the next nine months. The first tranche would be released after the IMF board approves the deal in its meeting scheduled for mid-July.

Most government leaders in Pakistan have been hostage to the vested interests that enable them to cling to power. This is the reason that instead of going for long-term sustainable reforms they prefer populist measures. What the economy needs is leaders who take decisions in the supreme national interests.

The rapid rise in price of essential commodities and their shortages have built up pressure on the ruling alliance as they are set to face the electorate in coming elections. The citizens have shown remarkable patience as prices have been rising beyond expectations. They may show their reaction in the next elections. In the meantime, economic wizards of the two major ruling parties should chalk out a strategy to deal with inflation, investment and growth in a prudent manner.

This can be achieved by improving governance and ensuring better check and balance. The performance of the coalition government over the last 15 months has been as disappointing as that of its predecessor in its 42-months rule.

Both these regimes disappointed the common man. The present government of late is taking measures to provide some relief to the people. It has slowly reduced petrol rates but power and gas tariffs remain high. It was because of relief on petroleum products that inflation slightly eased after 17 straight weeks. The question is: will it go down appreciably by election time to have an impact on the elections?

Improvement in governance is the only way to provide long-term relief to the people. Gradual improvement in governance can bring down the corruption level by at least ten percent in the last 100 days of the government. That can be substantial relief to the common man. The political survival of the coalition government is linked to fair and equitable opportunities for all, both on the economic and social fronts.

It would be a folly on the part of the government to leave difficult decisions to the caretaker set-up once the National Assembly is dissolved. The ‘painful’ decisions will ultimately pay off, though not by the time the elections are held.

The best thing would be to keep the national interest supreme and take the necessary decisions before the dissolution of this government. If the reforms initiated by this government are not reversed by the next, this could pave the way for sustainable growth. The challenge is to be the first government in 20 years that did not lay economic ‘landmines’ for its successor.

The government should make working towards economic resilience and a prosperous future for Pakistan its priority so that we do not have to rely on IMF help.

The writer is a senior economic reporter at The News International, Lahore