Please don’t blame the IMF for everything

Published: September 9, 2012
The writer was Joint Chief Economist, Planning Commission, Islamabad and then Senior Adviser to Executive Director, IMF

The writer was Joint Chief Economist, Planning Commission, Islamabad and then Senior Adviser to Executive Director, IMF

I write with regard to the article by Natalya Naqvi titled “The IMF and us”, which appeared on August 27, 2012. Ms Naqvi has a go at everyone’s favorite bugaboo: the International Monetary Fund. Her article is interesting but I beg to differ with much of what she says. However, since there is only so much I can write here, she is welcome to get in touch with me via email.

Ms Naqvi’s first sentence that the IMF has had a “key influence” on the conduct of macroeconomic policies in Pakistan leaves me bewildered. Considering we have never implemented an IMF-financed programme (save the one during the previous regime — or so it is claimed), this postulate has no merit at all. However, I will concede that some reforms were undertaken as part of our agreements with the IMF in the areas of central bank autonomy, prudential supervision, open market operations, interest and exchange rate flexibility, and privatisation (even if that was handled by financing from the World Bank). In other areas, and especially on the fiscal side — the mother of all evils — Pakistan has implemented absolutely nothing, despite IMF conditionality. Indeed, if anything, we keep regressing, adding new exemptions, concessions and amnesty schemes, so that we have the most regressive, distortionary, dysfunctional, fragmented and corrupt fiscal system in the world.

So I would put it to the writer that the IMF’s imprint on our macroeconomic policies has been marginal and fleeting at best. It is for a very good reason that Pakistan has been given the undistinguished title of a country characterised by “start-stop adjustment” in the IMF. Actually, I prefer the description “start-stop-roll back”. As soon as we have abandoned (another) programme, we roll back any reforms that we may have implemented. Removing exemptions and concessions and then promptly restoring them is a case in point.

Ms Naqvi talks of counter-cyclical fiscal policy and how the IMF simply does not get it. This point has been mentioned by others. Indeed, in the case of one specific person, he said that Pakistan should have rejected the IMF’s recommendations to tighten both fiscal and monetary policies in the context of the 2008 stand-by arrangement because it was bad for growth. I say to both Ms Naqvi and the gentleman that their recollection of the conditions prevailing at the time is a little blurred. The facts were that, prior to the engagement with the IMF in 2008, the Pakistan economy was heading off a cliff: growth had slowed, inflation was accelerating, there was massive capital flight, asset price bubbles had burst, the exchange rate was in free-fall and our foreign exchange reserves were disappearing at an astonishing speed.

Given this grim picture, does Ms Naqvi seriously think that a counter-cyclical fiscal stance (and, as a sweetener, a dash of monetary easing as well), would have been the right policy prescription? Or would such an injection of stimulus have done no more than hasten the plunge off the cliff? Would this be the right policy prescription again today with an FY12 budget deficit clocking in at 8.5 per cent of the GDP, inflation in double-digits and our foreign exchange reserves under immense downward pressure?

It is true that there were countries that had built-up “fiscal buffers” prior to the global financial crisis of 2008 and had room to manoeuver. China and India come to mind. Both countries had the “fiscal space” for discretionary policy action and were able to safeguard their growth and development objectives. Pakistan did not. The Pakistan economy was over-stretched, overheating and in peril. It had no choice but to undertake drastic adjustment measures to halt the downward spiral.

Ms Naqvi is harsh on “IMF-imposed” cuts in development. But her angst is misdirected. Based on experience, the prerogative of where and how much to cut on the spending side is that of the authorities, not the IMF. They certainly make suggestions and typically focus on non-interest current spending. It will also do well to note that the World Bank — and the Asian Development Bank — are at the negotiating table to ensure, inter alia, that development spending is not unduly compressed for the sake of  “fiscal adjustment”. Cutting development spending, or delaying the release of funds to projects to meet fiscal targets is an entirely “home-grown” Pakistani initiative. Yet, the irony is that despite across-the-board cuts that are disruptive and destructive, we still failed to meet fiscal deficit targets!

Ms Naqvi then has a predictable dig at another “IMF favourite”, as she calls it, of cutting subsidies. The IMF is not against subsidies. It is, however, very much against open-ended, untargeted and burdensome subsidies that benefit primarily the rich. Most level-headed economists would be too. On her additional point about PSE’s (public sector enterprises) becoming “national champions”, I would ask her how she would rate our  “national champions” of today: PIA, the railways and the Pakistan Steel Mills? Should we just hang on to these dying “national champions”?

Finally, if the writer thinks that the persistence of double-digit inflation in Pakistan has very little to do with fiscal slippages (and how they are financed), and everything to do with domestic and external shocks, I recall a story told to me about a meeting of the Economic Committee of the Cabinet (ECC) which Ms Benazir Bhutto chaired. She was being assured that inflation was being caused by “the price of onions and potatos”, and had nothing to do with the stance of macroeconomic policies. With economic advice like that, no wonder her government was toppled twice.

Published in The Express Tribune, September 10th, 2012.

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Reader Comments (37)

  • gp65
    Sep 9, 2012 - 11:21PM

    Thank you Sir. I always look forward to reading your posts on economic issues so I can learn from you.
    Specifically about this post of yours, it also makes me feel a degree of validation in my thought processes that what I instinctively felt about Ms NAqvi’s article (and which was expressed through my comments there), is what an acknowledged expert like you is saying with benefit of all the underlying metrics and technical inputs.

    Thank you again.


  • Richard Clarke
    Sep 9, 2012 - 11:25PM

    Pakistanis are very good..because they got 20 billion dollars allegedly to fight the war on terror
    They are taking the money to fight terrorism & they are building nuclear bombs with it..they are cracking nuclear bombs like sausages..


  • Farooq Tirmizi
    Sep 9, 2012 - 11:55PM

    Thank you, sir, for this informed defense of economic liberalism. I think far too many people seem unaware of the many nuances of the IMF’s role in the economic management of our country.


  • Falcon
    Sep 10, 2012 - 12:01AM

    A very balanced rebuttal and very informative.


  • IceSoul
    Sep 10, 2012 - 12:50AM

    Finally someone who knows what he is talking about. Thank You Sir! Thank You, although I doubt many will listen to you. We Pakistanis like our conspiracy theories hot n spicy!


  • Nadir
    Sep 10, 2012 - 1:08AM

    IMF is CIA-RAW-Mossad tool to forces cuts on defence budget! How dare!


  • LionOfPunjab
    Sep 10, 2012 - 1:23AM

    Sharp, blunt and to the point! Bravo!


  • gp65
    Sep 10, 2012 - 1:41AM

    @Richard Clarke: Your post is hateful and off-topic.


  • numbersnumbers
    Sep 10, 2012 - 3:10AM

    AND of course you can prove that “IMF is CIA-RAW-Mossad tool to forces cuts on defense budget”! NOT!


  • PakArmySoldier
    Sep 10, 2012 - 4:08AM

    IMF is infamous for their predatory practices. Read Joe Stiglitz’s (top 3 economists in the world) criticisms of IMF.


  • Falcon
    Sep 10, 2012 - 7:33AM

    In case you didn’t pick up on it, Nadir was joking.


  • Raw is War
    Sep 10, 2012 - 7:43AM

    excellant analysis.


  • Sep 10, 2012 - 7:54AM

    I completely agree with Dr. Meekal. I would further add that if Pakistan were to seriously implement IMF conditionalities in early nineties, we would have been better off. Pakistan and India approached IMF due to similar problems largely grounded in external imbalances, in 1989-90, and while India adopted IMF program wholeheartedly with political ownership, Pakistan eventually shied away from reforms after embracing it shortly. Thus, I think the classification of Pakistan as a “start-stop-rollback” is quite accurate.


  • Mirza
    Sep 10, 2012 - 8:05AM

    An accurate and scholarly Op Ed thanks for that. It is an open secret that Pakistan never followed IMF or west’s advise fully. If IMF and western countries are bad then don’t accept their money, it is that simple. Money is allocated for mostly civic projects and not for siphoning out to the WMD and nuclear devices.


  • gp65
    Sep 10, 2012 - 8:29AM

    @PakArmySoldier: “IMF is infamous for their predatory practices. Read Joe Stiglitz’s (top 3 economists in the world) criticisms of IMF.”

    Stiglitz has no skin in the game. He has never lent a single red cent to PAkistan. IMF has – 8 times.


  • Sep 10, 2012 - 8:31AM

    Informative to compare the article . I feel IMF or world Body’s aid come with their perception of problems of the country receiving the aid remedial steps they deem fit ignoring the prevailing sociopolitical situation and knowing well that their suggestion/ commonalities will not be met.


  • pak voice
    Sep 10, 2012 - 8:41AM

    we will blame, because our very existence depending on our blaming skills.


  • Kaalchakra
    Sep 10, 2012 - 8:50AM

    I disagree. IMF has negative results, both seen and unseen. The seen results are formally tabulated, but the untabulated ones are far larger. Even the tabulated results consist of a sad mixture of fact and fiction. Of these facts, good facts are blown out of proportion to make IMF look like an angel, but the bad facts – well, the nation is left to suffer their consequences! That’s why we ought to focus on the unseen results, to begin with.


  • Rashid
    Sep 10, 2012 - 9:55AM

    It is true that the main reason for Pakistan’s bad economic performance is its own bad policies and not IMF policies since Pakistan has not really followed IMF policies fully. however, countries that have followed IMF policies more fully have suffered immensely becuse of the bad advice, e.g., in Latin america and Africa.


  • Naeem Javid Muhammad Hassani
    Sep 10, 2012 - 10:37AM

    Waiting for Ms Naqvi response.


  • Anwer Mooraj
    Sep 10, 2012 - 10:49AM

    I wish Mekaal would write more often in the Express Tribune. Not only does he know what he is talking about, he has an enviable scholarly background. It is refreshing to see a balanced, knowledgeable, well argued article on a touchy subject.
    Anwer Mooraj


  • Haider Hussain
    Sep 10, 2012 - 12:37PM

    I read “Globalization and its Discontent” by Jo Stiglitz 4/5 years ago and he was quite critical of IMF policies in developing world. Stiglitz’s main criticism was that IMF proposes a rigid set of policies that it tries to “impose”. Nevertheless, I tried to understand IMF’s post-2008 policy behavior (with Pakistan) in the light of Stiglitz’s criticism, and I came to the conclusion that IMF’s policy responses/suggestions have become more flexible this time (I love contrary point of view, so that was to my disappointment!).

    On the monetary tightening, I only want to say that it was the best our policy-makers could do. This policy prescription was not just “IMF-imposed”. I was part of a report that was published by SPDC back in 2005 (link text) . We observed that the economy had started overheating and the tight monetary policy should continue.


  • jjndkvn
    Sep 10, 2012 - 1:18PM

    That may be the most wishy-washy comment in the history of comments. “Negative results”, “tabulated results”, “un-tabulated results”, “good facts”, “bad facts”. How about mentioning what these are exactly?

    Many people have made up their minds due to the general criticism that exists against the IMF due to some big failures with other countries. They are accused of applying a one-size-fits-all strategy. But when criticizing in the case of Pakistan, there is a need to be specific. Why is IMF policy not good for Pakistan specifically? How has it been bad specifically?

    But as the author points: the later question is somewhat moot since we have never actually implemented IMF policy.


  • Z Ali
    Sep 10, 2012 - 1:40PM

    @PakArmySoldier: Even Joe Stiglitz would have a very hard time trying to defend the GoP vs the IMF. He is certainly a fierce critic of the IMF, but I sincerely doubt he would come out punching in defence of the utterly demented policy stances taken by the Govt of Pakistan. Simple Example: Lets divert 100% of the Annual Development Program funding to pay for electricity subsidies – basically burning cash to buy oil rather than investing in the long term benefit of the people. Stiglitz may not like the IMF, but he will like the Govt of Pak’s policies even less!


  • Sep 10, 2012 - 3:31PM

    At least Peter Doyle has courage to accept what IMF was.


  • Pure Insanity
    Sep 10, 2012 - 3:49PM

    IMF doesnt shove money down the recipient countries throat but as any other bank its loans have covenants (minimum requirements for the recipient). The alarm bells are already ringing when a country is taking IMF money. Its obvious IMF will fail in many instances cause the ground realities are inherently so poor and in most cases promises are not fulfilled by the recipient (recipients often lie about macro indicators and figures – this was the case in Pakistan). If the situation in Pakistan would be so amazing, it wont be asking for IMF money in the first place. The IMF doesnt come to pakistan telling it to take more money. Its the Pakistani authorities that ask the IMF for money and the IMF like any other bank asks for collateral and covenants in terms of fiscal and govt. spending measures. Its like giving a company that is already loss making, untrustworthy and a bad borrower money. Any sane person doing that would want to change the course of direction of the company even if it means you have to let go of a few ppl and people have to face hardships and strict guidlines for this in case of breach of contract. Also the countries that are putting up the money for the IMF obviously will have a say in where and how the money is spent, through the board and other positions in the bank. There are no free lunches. It doesnt need a rocked scientist to understand that the IMF and its funders have their agenda. The borrowing country is aware of this before, during and after it has taken a loan. Pakistan runs to take a loan then complains how the loans were unfair even when it doesnt implement any of the requirements of the IMF. THE TERMS OF THE LOAN WERE KNOWN TO EVERYONE WHEN THE LOAN WAS TAKEN. Pakistan has no right to complain after.

    Its not like a magic wand. If Pakistan continues taking money but doesnt change anything in terms of policy, spending, tax collection, resource allocation then there is only one party to blame and that is Pakistan and not the evil monster the IMF.


  • Prabhjyot Singh Madan
    Sep 10, 2012 - 5:53PM

    Why blame the imf ? The terms and conditions are all in fine print. Why should the lendee complain against the lender after that. It is not a NGO or a social service. If the lendee breaks the rule then USA or world bank or imf is not to blame. If Pakistan does not agree or intend to implement the deal in dotted words then just dont sign it. Simple in layman terms and I am not from the finance ministry. Cheerio


  • littlegiant
    Sep 10, 2012 - 7:31PM

    Unless you know what the problem is, you cannot prescribe a fix. The author states that the problem is the govt of pakistan and hence IMF is blame-free. The issue is that both the Pak govt and the IMF are guilty. We all know the fault of the govt of pak, especially the ppp-led govt in the 90’s to a greater degree though PML-n also shares some blame, and of course the current govt more than any other in our history. However, the current govt has chosen to set aside development and fully knowing followed the fiscal policy that it did, the IMF’s one-size-fits-all problem is still applicable. Pakistan, despite what is ad nauseum repeated by our ‘experts’ and otherwise, did not need such prolonged monetary tightening. To ascertain why, we need to look back at 2008 and figure out the causes of our arrival at the cliffe in nov of 2008. That’s a complex analysis itself and not without diverging views, however it would be apparent to most, that Pak needed fiscal tightening and monetary loosening or the absence of monetary tightening for the past 4 years.


  • Sep 10, 2012 - 9:31PM

    Fiscal Deficit is not the creation of the IMF.
    Cutting Interest Rates to accommodate more Fiscal deficit is not a recommendation of the IMF.
    The issue of Balance of Payment is, however, is a creation of the IMF.
    How about settling export payments in Rupee to give boost to the Rupee in the forex market?
    For Imports, Pakistan can simply buy whatever the importer demands, from the Forex market. How hard is that for anyone to speak of?


  • What the.....?
    Sep 10, 2012 - 10:19PM

    I think the author should stop zealously defending this moribund institution- his former employer- and its regressive economic policies. But for the financial crisis following the Lehman collapse in 2008 (which itself was a result of the free market policies so passionately espoused by the IMF and The Chicago School) the institution had become marginalised to the point of being irrelevant. Ironic.

    The Greek crisis has shown that it remains irrelevant to this day, the real powers being institutions such as the ECB and major international economics players (Germany, China, Russia, Brazil, Japan etc).

    The IMF and its policies should be consigned to the dust-bin of history where they belong.


  • Moreever
    Sep 10, 2012 - 10:31PM

    “we have the most regressive, distortionary, dysfunctional, fragmented and corrupt fiscal system in the world.”

    The vitriol the author- a former government official- reserves for Pakistan is breath-taking and frankly distasteful. One wonders how, as a representative of the Pakistan govt he could have promoted Pakistan’s interests at the IMF when he had such a negative and jaundiced view of the host government (and his own country)!


  • meekal a ahmed
    Sep 11, 2012 - 12:42AM


    Sir/Or are You Madam?

    I always find it awkward to repsond to someone who thinks they need to hide behind a dumb name.

    I did not want to get into a slug-fest here and just wanted to thank all for their comments which I found to be mature and balanced — and in some cases amusing.

    But since you have turned this into a personal affair, let me respond to your specific charges.

    Whether and how well I “promoted”/defended Pakistan’s interests in the IMF is not for me to judge; you would have to ask others.

    All I know is that I defended Pakistan to the best of my ability through the good times (which were few) and the bad (which were many) and even when I KNEW my authorities back in Islamabad were BS-ing our office, me, my Executive Director and the IMF and that they would betray us one more time.

    Was I therefore complicit in that deception? I suppose I was. So please ask the Supreme Court of Pakistan to take suo moto notice. I look forward to their summons.

    I defended Pakistan even when we were fined millions of SDR’s by the IMF for falsifying fiscal data to which WE confessed because the snazzy Mr Shaukat Aziz with the million-dollar smile and suits wanted to show the IMF that he was a regular, up-standing honest guy who could be trusted.

    [And he probably cooked the books too to show “compliance” with the PRGF. More on that some other time].

    I have never felt so humiliated as I sat there in a meeting that lasted six hours as 23 Executive Directors stared at me, unamused and unmoved, and blasted Pakistan for cooking the books.

    I would rather not recall what I said. I would be embarrassed even after so many years that I could trot out so much tripe and tosh.

    As for my description of our fiscal system, please correct me if you think my views are “jaundiced”. How would you describe it?

    Finally, I was NOT “Pakistan’s representative”. That is a common misconception. I was Senior Advisor to Executive Director. He, not I, “represented” Pakistan alongwith the other countries in our “constituency” (Iran, Algeria, Tunisia, Afghanistan,Morocco and Ghana).Pakistan elected him; not me to represent the country.


  • Asma
    Sep 11, 2012 - 5:06AM

    @meekal a ahmed:
    I thoroughly enjoy reading your informative contributions.


  • littlegiant
    Sep 11, 2012 - 5:30AM

    @meekal a ahmed: that ’embarassment’ shaukat aziz was able to get Pakistan off of IMF in 2004. Whatever the discretions or the indiscretions, Pakistan did not need the IMF and that’s an accomplishment. Also, Pakistan posted 7% growth rates and its currency was stable during that period whereas now it’s approaching rs 100. These are the facts. Sure you can justify them or attempt to devalue them, but facts they are. Perhaps you would state that why did we have to go back to IMF in 2008 Nov? You can ask the various money exchange firms around to find out what happened during April and Nov of 2008. I think you will get your answer.


  • anticorruption
    Sep 11, 2012 - 6:31AM

    A very good piece. Indeed, the IMF is not to blame for Pakistan’s economic problems, especially when we have almost never completed any IMF program. That said, I have also read Stiglets’ book and it seems that his criticism about the tendency of the IMF to go for a rigid one size fits all approach is not without justification either. And I have yet to come across any good rebuttal of Stiglets. However, I don’t believe what Stiglets says is applicable to Pakistan, as in our case, our fiscal imbalances are one of the leading causes of our problems.


  • gp65
    Sep 11, 2012 - 11:24AM

    @ASIF: “How about settling export payments in Rupee to give boost to the Rupee in the forex market?”
    IF exports are settled in PKR instead of hard currency, where will you get the hard currency to pay for your imports?


  • Moreover
    Sep 11, 2012 - 8:22PM

    @meekal a ahmed:

    It is unfortunate that some of our best economic talent has left Pakistan for greener pastures and the tax-free jobs at places like the IMF and the World Bank. Some return to serve their country (the present Finance Minister Dr Hafeez Shaikh is an example) while others stay on in the US. As overseas Pakistanis it is but natural that these individuals should retain an interest in the country of their origin . It is sad, however, when they turn on their homeland in this way and make personal attacks on the government and the country’s political leadership (Shaukat Aziz and the late Benazir Bhutto in this article, to name but two for whom the author has reserved his vitriol).

    The author needs to recognise that while the IMF cannot be blamed for everything, its policies are not ‘the cure for all evil’ either. He implies that Pakistan’s economic problems could have been resolved had it only completed an IMF programme: this is a gross over-simplification of the issues. History is replete with examples of the IMF’s prescriptions having caused widespread economic destruction: the 1997 Asian crisis is a case in point, when the Fund’s free-market policies sent the economies of Indonesia, Malaysia and Thailand into a recessionary tail-spin. The Nobel laureat economist Joseph Stiglitz’s book on ‘Globalisation and Its Discontents’ is a damning indictment of these policies and well worth a read.

    While Pakistan’s economic policies can be criticised on many fronts, the wholesale adoption of the IMF’s free- market ‘Chicago School’ type policy prescriptions – which seems to be what the author is recommending- is not a panacea for our ills either. What is required is a pragmatic approach to resolving these economic issues and if that entails making an alliance with the devil (IMF) to stave-off a balance of payments crisis- so be it. But there can be no doubt that the sooner the country can disentangle itself from an IMF programme and return to the pursuit of the path of economic prosperity that is consistent with the furthering of its own national interests, the better.


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