Rentierism, mismatched expectations, broken vows and travails

In clinching the $3 billion, nine months SBA, Pakistan clocked the 23^rd agreement with the IMF, since 1958 when the first SBA was effected, commencing a 65-year-old ambivalent relationship.

Are we any better after 13 SBAs and 10 EFFs spread over a rollercoaster relationship that has, more than anything else, reinforced complacent rentierism and inequality, marked by mismatched expectations, broken vows and resultant travails.

Shops and malls remain well-stocked despite backbreaking inflation. Wage constriction asphyxiates the poor. Despite steep POL prices, lines of wheelers at petrol stations nary deplete. Expensive posh localities, public schools, private health outlets and motorways coexist with slums, girls’ schools sans washrooms, hospitals without essential medicines and rural dirt tracks for the multitudes. No economic ingenuity is needed to comprehend how our umbilical cord ties with IMF and other multilateral institutions, as well as other partners, have led to endorsement of an order where two disparate societies coexist, with state services monopolised by the endowed.

The malady daily spreads showing no abatement, with increasing mouths to feed, collapsing state institutions, a weak and inequalitarian economy, unable to provide jobs, essential social services and security. No wonder the increasing concerns of the establishment with enlarging the size of the economic pie.

In this mixed, rather turbulent period of Pak-IMF matrimony, the one side has insisted upon a self-deluding sense of entitlement. It recounts unquestioned allegiances to the West during the cold war and the war against terror, but fails to comprehend nuanced subtleties of transactional geostrategic relations with the US and its attitudes towards Bretton Woods institutions. The other side has stressed globalised laissez fairism with table-crumb welfarism and economic stabilisation, ignoring an inegalitarian and exploitative social and economic system.

Periodic easy recourse to IMF to extricate our chestnuts from the fire, arising from consumption-oriented cyclic growth and stagnation, coterminous with periods of sporadic western windfalls and drying up of rentier gravy, has led to self-inhibiting, temporary spells of growth precluding sustainable development. An economic model is thus entrenched given to fortifying debilitating economic elitism, aimed more at political window dressing, signified by a refusal to tackle core structural social and economic distortions, hampering robust growth and welfare.

Mere stabilisation programmes cannot dilute rentierism, crass inequality and elite capture.

How and why was Pakistan taken to the ropes with SBA materialising at the last hour? The last minute personal, desperate efforts of PM Shehbaz Sharif with Christina Georgiova in Paris counted. Yet a deferential attitude, maybe a nod from Washington, cannot be totally discounted as perhaps the main contributory. A sense of an upturn in Pak-US relations was around in the air, after relations ebbed to one of the lowest lows, upon mainly motivated allegations of US-led regime change laid out on heels of a VONC ouster of a weak coalition government.

But the US share in the IMF funds of 16.5% doesn’t reflect its true clout as leader of the Western block, reflected in the exclusion of Cuba from bank membership due to the US Helms-Burton Act, 1996.

Breach of vows with the IMF is not unknown but the one made in Feb 2022, by granting an unfunded subsidy on petroleum and electricity costing $1.2 billion, came as a double whammy. The violation of the $6.5 billion led to sharp IMF response.

A carryover of serious trust deficit led to IMF requiring fulfillment of front-loaded, unprecedentedly tough, conditionalities like prior arrangement of $4 billion from bilateral partners like China, Saudi Arabia and the UAE, enforcement of a market determined exchange rate, withdrawal of subsidies on oil and electricity, curtailment of fiscal deficit, upscaling of interest rates and withdrawal of all exemptions.

An already faltering economy, hit hard by the Ukraine war and biblical floods in summer of 2022, spun into precipitous decline. Political instability following the ouster of a government through a VONC compounded the situation. Difficulties in reinstatement of IMF package resulted in foreign bilateral and multilateral sources drying up. These factors, with a chronic CAD, cumulatively led to serious reserves depletion raising fears of debt default, a phenomenal spike in dollar rate and inflation, a sharp fall in growth rate from around 6% to 0.5%, crashing purchasing power, lowering living standards and increasing poverty levels.

Upon consummation of the SBA, the IMF MD publicly conceded that it was difficult to convince the bank BOD of Pakistan’s commitment to agreement terms due to Feb 2022 flouting of the IMF agreement. The subsequent IMF Report stresses debt reduction; undoubtedly, for this the ostrich must remove its head from the sand.

Will this be the last recourse to IMF bailouts?

Will the elite rich, interspersed over politics, business and the military, agree to compromising on their claimed economic prerogatives. Self-interest itself dictates this course. There may not be another opportunity.

The informal undocumented is about half of the registered economy. The need for broadening the tax base is thus self-evident to cover the $360 billion or Rs110 trillion informal economy.

By now the social and economic sector reforms that are inevitable are common parlance. No great economic expertise is needed to appreciate that a viable solution to loss-making SOEs is necessary; that a debilitating exemptions regime corresponding to privilege cannot work for ever; that power sector circular debt of Rs2.7 trillion is unsustainable and that avoiding taxing agricultural incomes, property and retail sectors cannot continue. Subsidies should only help the underprivileged excluding the rich. Exports need priority.

Recently a debate has arisen on what is more crucial: economics or politics. Events since 2017 leave no room to doubt that while economic determinism plays a vital role, there have been considerations governing relative positions, inter se, of stakeholders in the power structure, which transform into control over resources, that have played a prominent role in economic fortunes. This line of reasoning clearly establishes how important it is to our evolution as a prosperous country to do two things as a minimum: disaggregate economic policy and plans from politics. This necessitates agreement between power stakeholders on fundamental economic essentials, incorporated in an agreed National Charter of Politics and Economics, lying outside temporary political expediency, to ensure continuity of economic policies and programmes.

Published in The Express Tribune, August 2^nd, 2023.

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