IMF not a permanent solution

Dr. Hassnain Javed

November 30, 2018




In the recent times it is observed by some of our national economists, policy makers, government official that Pakistan would be unable to survive if it does not seek the International Monetary Fund’s help. Although, it is no less than a delusion keeping in view the economic standing of our nation.

These thinkers were of the opinion that Pakistan’s financial ranking will catch by re-entering an IMF programme. Indeed, the situation is altogether reversed, it can be improved, if we show the will for better management of our economic and financial affairs. Without, knocking at IMF Pakistan still possess the capabilities to generate more funds. If we view the historical episodes for Pakistan’s IMF programme they are harsh, rather than a sigh of relief for the masses at large. They had at many instances badly affected our economic potential. The major ills attached with this programme is the devaluation of currency, rapid increase in energy and electricity charges, liberalization of imports and increase in interest rates.

With the devaluation of currency there is a gradual increase in the foreign loan servicing in the rupees which further translates into inflation and it ultimately routes to higher prices without any gains. Likewise, there is a trade deficit as the raw material of imports for manufacturing becomes costly that further routes into making export goods expensive. For instance, in the last programme there is an increase in raw cotton import prices which has badly crushed the Pakistani textile sector.

Moreover, with every passing year Pakistan is experiencing an increase in gas and electricity rates that have already make life difficult to live for the general public at large. Furthermore, liberalization of imports has also exhausted our economic overlook and industrial productivity. Despite the heavy trade deficit experienced in the past 70 years of economic history the newly launched mini-budget still did not focus on shrinking the level of imports. Thus, further liberalisation via re-launching the IMF programme will be no less than a nightmare. In addition, Pakistani economy is in need of low interest rates rather than high. The existing 8 percent lending rate by the State Bank has affected the industry and if interest rate further increases it would be a clear indication that only few firms would survive.

Besides this, it is a time consuming and slow process to recover the stolen money but yet there is hope to have few billion dollars in Pakistani reserves in the upcoming years. In addition, very few state-owned enterprises have been privatized which requires another immediate action. The remaining government share holdings in the organizations should be sold off to raise few billion dollars within a short interval. It will be added as a positive boost to our current stock exchange which has been badly affected with overall prevailing economic situation.

Pakistan as a nation needs permanent solutions to all the problems rather than finding a temporary prescription from IMF. Our economy needs to focus on improving the level of exports and to narrow down imports. As discussed in my previous articles as well, we need to work on tax policy reforms which are promising and encouraging for our industrial sector and provide them with a sigh of relief. Likewise, the banking sector needs to have technology up gradation in a way that it can exactly compete with the Hawala system prevailing in our roots. Moreover, Pakistan has great potential, it only needs facilitation.

Thus, we as a nation have to forget whether IMF is a friend or either foe. The main agenda on the table is to decide the options. We have to closely cross check what we require and what the other party is demanding from us in return of financial assistance. We have to rightly weigh the costs and benefits. The likely costs suffered by having another IMF bailout, will translate into a slowdown of the economy rather than acceleration. The IMF recipes and their limited ingredients have hardly performed well in any of the countries where assistance was provided in the past.

Pakistan has no other option but to borrow money to run its economic endeavors successfully but for that it is not necessary to knock IMF only we can seek assistance from our friendly alliance countries like KSA and China. As we all are well aware that IMF will not fix our current account deficit, neither is it going to improve our exports nor will it provide relief to our capital markets.

Moreover, with high domestic liquidity at hand raising interest rates is also not the viable option. Therefore, IMF could be taken into consideration when our friendly alliance countries have not extended hands to rescue us in the hour of need. If we as a nation unite and show improvement in the next one year then more friends will join hands and would be ready to invest in our country. If we manage to tackle our problems with our own resources and not IMF then in the near future our economy will be viewed as an epic tale of an astounding economic turnaround. We have to prove our all capabilities with conviction and by religiously practicing the policies and reforms.

Knock knock to nation not IMF!

Dr. Hassnain Javed

October 19, 2018




After the forming of the new government we can hear the rising echoes of hike in gas, energy and petrol prices. The subsidies are also shrinking and the cheery on top of all these crises; the International Monetary Fund (IMF) program for Pakistan, is also around the corner. Since 2014, petrol prices have sky-rocketed reaching an astounding figure of $83 a barrel. As also discussed in my previous articles, Pakistan’s economy has attached high hopes with the new government and the ringing bells of economic crises, are a clear indication that the nation will once again, become deprived of the failing hopes and expectations.

As it all signals the traditional knocking by the government to the IMF once again. I believe to keep up the high spirits, government needs to define the rapid action plan for which it is not necessary, to knock at donor agencies doorstep once again. All in all, we don’t need funds from IMF anyway. Indeed we require visiting the IMF program when the economy is an immediate need of USD 18 billion whereas as off now Pakistan only in need of USD 4 billion. For that matter, we can issue bonds, sell stocks in the local currency, issue bonds in the stock exchange — these are means which have hardly been ever used by our government.

Now, as we are about to knock the IMF door once again, it has already started reflecting in the rupee devaluation. Based on historic evidence from third world countries, all who have taken to IMF programs have suffered from highly volatile currency.
Moreover, it will also sweep into the accelerating energy and gas prices. Upon closer inspection, Pakistan has rising import bills and as per my calculation we are currently only left with a mind boggling 15 day cash balance for import cover. Besides this, Pakistan has recently operationalised the metro buses in Lahore, Islamabad and Multan and to keep up with their operations it requires 20 billion annually, whereas 300 billion alone was spent on its construction. It is an indication that the government has to allocate some subsides for this sector as well. But, in reality the bigger challenge for the government is to save the country as a whole and devise policies and framework which can provide cushion for the larger spectrum rather than just providing support to orange lines and metro buses.

I believe the government should design policies in a way that allocate subsidies, but in smaller chunks and in multiple phases, for the upcoming years for all the projects in which hefty economy money has been injected by the previous government.
Likewise, the theory of form/ideas by Plato should be applied in which not only the government is solely providing the subsidies, in fact the authorities should also be held liable, for managing these ventures in a way that it tremendously improves, the daily passenger count. For that purpose, there should be proper passenger travel route plans, to provide them with maximum facilitation and ease of mobility. It will aid in generating revenue that can ultimately make the institution strong enough to cover up their own expenses, rather than becoming dependent on government for subsidies and its operations. If we closely look into the circular debt then its root causes are the subsidies provided by the government. All the former and new government take positive initiatives and launch programs to make Pakistan, a better Pakistan but such projects suffer from a major lag that is dependence.

Actually Pakistan is not suffering from circular debt rather suffering from circular subsidy. It is taking energy at higher prices and selling off at lower prices. This all indicates that we are suffering from absolute economic mismanagement. So far there no plan has been proposed by our state Finance Minister, to address the primary concerns. Thus I am of view that there should be a press conference held on the state of the economy, or either Prime Minister should address the whole nation and narrate with facts and figures, all the economic ills Pakistan is currently suffering from. Moreover PTI needs to streamline the stage of tumour, which could either be treated with high dosage of advanced treatment or could be left to break and fragment. It should be followed by the address of Finance Minister which provides apt and viable solutions after the diagnosis. The high debt burden, subsidies, corrupt institutes and ills of the previous government, are something we are all aware of. We need to take immediate action and form a comprehensive plan.

Economic leaders should propose remedies for eradicating the IMF trap. How will subsides be fought so far there is no policy statement issue on broadening the income tax bracket. By now, if no rapid action is taken then our economy will also suffer from economic meltdowns similar to Venezuela, Argentina and Jordon. It will ultimately lead to economic strike and society gathering for basic necessities rather than political sittings for fair trails and transparency. Similar to other developed economies, our government and economic leaders, have to unite the entire Pakistan under one umbrella to fight with the poisonous bacteria spreading in our society at high speed and work towards the welfare of the country. Collaborative approach and design is most feasible rather than one man beating his head.