Can we Break the IMF Chokehold?


Hafeez Khan

The cumulative damage to the economy of over three decades cannot be corrected in a year or two

In my last article “It’s time to stem the rot, not fuel it,” I had written about the hapless Sharifs and their lackeys. I challenged their full-throated claims of an impending deal and completely debunked their frivolous narrative. I marveled at their unmatched capacity to create fake news narratives from nothing, packaging and promoting it at all levels. The reality is that Sharifs can stay relevant only through fabricating falsehoods via their sophisticated propaganda machine. They have no bargaining chips left. Political spin is the only way to keep their support intact.
Nawaz Sharif may be on the verge of being denied residence in the UK. If deported he will have to come to Pakistan; not as a victor but as an absconder. The recent DG ISPR press conference very categorically stated that no deals are happening. Period. Response from Sharif loyalists is muted and evasive. Rightly so, the perception they had so painstakingly created got smashed to smithereens. I genuinely believe that PML (N) is still a vibrant and viable party. It is time for genuine Muslim Leaguers to break the shackles of Sharifs, who are fast becoming a serious liability.
Dwelling on the accountability of the looters is relevant to today’s topic. The stolen funds by Nawaz and Zardari combined, according to knowledgeable sources, exceed 10 billion dollars. The shortcut to this recovery is available under the Chinese model. Unfortunately, we are stuck in the quagmire of a system inherited from the British. We have let it deteriorate over decades into a dysfunctional framework that only serves the rich. Unless drastic reforms are implemented, expecting recovery of stolen billions will remain an unrealizable pipe dream.
How did we get here? Explanations in economic terms may be too technical. Let us visualise a flood in Indus originating upstream in the gorges of Gilgit and Skardu. As it travels downstream, the volume increases from the tributaries. As the waters reach the plains, it spills over spreading devastation. It continues to wreak havoc on whatever is in its way.
This analogy describes the damage and disaster that started decades ago in our economy. The impact continues to snowball with time, engulfing everyone. The damage is cumulative and keeps increasing. It can only be stemmed by planned and determined corrective measures to divert the course of events.
A simple analogy will work. Managing an economy is similar to running a household. When income is less than expenditures, one ends up borrowing to make up for the shortfall. Now, you have to meet expenses and pay off debt. Unless income levels increase or expenses are cut, one keeps getting buried deeper and deeper in debt. Eventually, it becomes unbearable.
That is what has happened to Pakistan. In the last three decades, borrowing escalated steeply. No serious and planned efforts were made to increase revenues through improved tax collection or boosting exports. Rather than cutting costs, expenditures ballooned to cover rulers’ kickbacks. Damaging long-term financial commitments were made with malafide intentions that continue to hound us even today. The debt mountain became bigger, increasing to unsustainable levels.
When the PTI took over from PML(N), the current account deficit stood at 20 billion dollars. The financial reserves stood at 15 days of imports. The external debt stood at 90 billion. These were dangerous levels and Pakistan was teetering on the verge of bankruptcy. On top of it, devious Ishaq Dar had found creative ways to conceal liabilities. The PTI failed to gauge the depth of this debt trap. The cumulative damage to the economy over three decades cannot be corrected in a year or two. Now, the external debt has increased to 116 billion. You borrow more to repay prior debts.
We tend to exaggerate. Our “analysts” and “experts” became prophets of doom; after all, fear sells more than logic. They offer a few positive suggestions. Fortunately, I wear no such shackles. The economy can be turned around by diligently following a clear and determined policy of pursuing the following priorities:
* Speed up accountability to recover the stolen national wealth.
* A focused drive to diversify and expand exports.
* Sharply limit imports to essential raw materials, equipment and machinery, staple foods, or items of national priority.
* Incentivize agricultural production and processing capabilities to give value addition for exports.
* Prioritize minerals production of high-value products like copper and gold from Reko Diq or similar sites.
* Speed up big and small hydroelectric dams for cheaper energy.
* Document the economy and increase the tax base for more revenue collection.
* Move with full energy on population planning and slash back on multiplying like rabbits.
* Sharply reduce wasteful expenditures and zero tolerance for corruption.
* Create a conducive environment for investors to include specialized commercial courts for speedy dispute resolution to encourage foreign investors.
* Capitalize and encourage Overseas Pakistanis to invest.
* Drastic improvement in quality of governance and legal reforms to facilitate business.
Rome was not built in a day. This effort to break the chokehold of IMF will be gradual and at times painful. By establishing a working relationship with IMF opens doors to other institutions like World Bank, Asian Development Bank, and other multilateral agencies. Our impediments are corruption, poor governance, cumbersome and intrusive bureaucracy, and short-term vision. We need to cut the bull and get on with the job.
The cumulative damage to the economy of over three decades cannot be corrected in a year or two.