The IMF’s puzzling optimism

The IMF mission chief stated that despite the challenges facing Pakistan, the ‘sky is falling mentality’ is excessive.

An IMF team that visited Pakistan during this past week, in connection with its latest lending package, has expressed broad satisfaction with the country’s progress, subject to its latest intervention to avert potential default.

Pakistan had faced a similar balance of payments crisis in 2008 which had also compelled it to seek an $11 billion IMF loan package, which was then suspended two years ago, due to our non-compliance with its accompanying reform targets. This time around, our prime minister has promised the IMF to privatise loss-making state industries, reform the faltering energy sector, increase tax revenues, curb government borrowing and take steps to build foreign exchange reserves. Yet, achieving each of these promised goals poses major challenges within our existing political economy.

It was, thus, somewhat surprising to see the IMF revising its GDP growth forecast for Pakistan upwards from 2.5 per cent to 2.75 per cent for the current fiscal year, and up to five per cent in the medium term. The IMF has further observed that since growth is now expected to improve, and inflation in Pakistan is relatively modest compared with several other countries which have been in crisis over the past few years, there is room for more optimism about Pakistan’s economy.

The IMF mission chief, in fact, stated that despite the challenges facing Pakistan, the prevailing ‘sky is falling mentality’ is excessive and that there is no need to ‘exaggerate the problem’. However, rather than directing these remarks to a domestic audience, the IMF mission chief should have addressed other international agencies which continue to make dire predictions about Pakistan. Consider, for instance, the annual Legatum Prosperity Index, which has just released its rankings for 2013, putting Pakistan near the bottom with a rank of 132 in a total of 142 countries listed. This London-based entity aims to assess global wealth and well-being covering more than 96 per cent of the world’s population and 99 per cent of the world’s GDP. While Bangladesh (103) has overtaken India (106) in overall prosperity, Pakistan’s position has slipped from 107 in 2009 to 132 in 2013.

Even according to the Doing Business Report 2014, the flagship report of the World Bank and the International Finance Corporation (both of which are IMF partner organisations), Pakistan’s global ranking has slipped from 107 to 110, out of 189 countries, in terms of ease of doing business. Moreover, this report further stated that, in South Asia, six out of eight economies have taken significant steps which will help them attract foreign investment but Pakistan was not among these six countries. Instead of trying to reassure hapless Pakistanis who will have to bear the brunt of increased public debt and IMF induced austerity, the IMF should share its newfound reasons for optimism concerning Pakistan with its partner organisations, so that there is less contradiction in their assessments.

Nonetheless, the reasons for the IMF’s confidence still remain perplexing given that 11 of 12 IMF programmes since 1998 have been discontinued due to Pakistan’s failure to institute its prescribed reforms. Even if the current government was to closely adhere to the current IMF loan conditions, their resulting impact on reducing the existing inequalities and widespread deprivation remains far from assured, given the IMF’s dismal track record of helping address such concerns across much of the developing world.

Published in The Express Tribune, November 15^th, 2013.

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