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Reading between the IMF’s lines

LAHORE: The economy drifted into uncertain mode after Pakistan became the founding member of World Trade Organisation (WTO) and in our enthusiasm to comply with the global trade body’s rules we opened our economy much earlier than our competitors. That was an serious economic error, whose repercussions continue unabated to this day.

The import duties were drastically reduced that encouraged imports. Not only did it effectively lead the investors to stop producing many of those imported products locally, but also withdrew the subsidies and facilities to the exporters that slowed down our exports.

India on the other hand opened its economy slowly and gradually. It first strengthened its domestic industry and encouraged new technology to produce products that India was importing before it started opening its economy. At the same time it continued with liberal subsidy schemes for its exporters to capture foreign markets from competing economies. Today Indian economy is more open than Pakistan and growing at an astonishing pace. The failure of our economic model was apparent to all. This was the reason that during the nineties our establishment took the decision of importing economic experts from abroad. Moeen Qureshi was the first US-based economist that was asked to put things right as interim prime minister of Pakistan for a brief period. He left the economy in more bad shape when the power was handed over to the then elected government.

Then immediately after military takeover in 1999 Pakistan’s Finance Minister and the State Bank governor were imported from US both were of Pakistani origin. Shaukat Aziz as finance minister promised miracles and assured the nation he has identified the problems and soon the country would be put on a sustainable growth path. Dr Ishrat Hussain as central bank governor managed the monetary policy in such a way that the policy rates declined appreciably and inflation was in single digit by the end of his term.

There was a brief period of prosperity and many entrepreneurs invested heavily in technology. One and half year after election, Shaukat Aziz was kicked upstarts to the office of prime minister. When he left in 2008, the inflation was rising and so was the markup rate. The rupee after eight years of stability started declining against dollar. The entrepreneurs who had obtained project loans at a very low markup were shocked when within two years the markup touched double-digit and inflation skyrocketed. That was the bust phase of the boom-bust cycle.

After the change of power in 2013, Pakistan entered a boom phase without the services of a foreign-based expert of Pakistani origin. We achieved the highest growth rate of the decade in 2016-17, the last year of previous government.

The new government initially tried to manage the economy through its own experts but finally was forced to seek the assistance of imported Pakistani experts. Hafeez Shiekh was called back from the UAE to become advisor to the Prime Minister on finance and Dr Raza Baqir from International Monetary Fund (IMF) was inducted as governor State Bank of Pakistan. They again claimed to have diagnosed the maladies the economy has been suffering from and assured that sustainable growth is around the corner.

An interesting fact in this regard is that the IMF during the tenure of Shaukat Aziz was all praise for his economic policies and his government almost completed the IMF-dictated programme.

But the sustainability vanished after the change of government. Then the IMF approved a programme for Pakistan when Pakistan Muslim League-Nawaz (PML-N) was in power. That government also earned IMF kudos on regular basis for putting the country on the path of economic growth. In fact, the IMF was so pleased with the previous government that it gave thumbs-up to their quarterly performance for almost three years. That was the first IMF programme that Pakistan completed.

As the government changed, the weaknesses that were the hallmark of previous regimes, resurfaced and after a delay of 10 months the government was forced to seek IMF assistance.

The assistance has again been approved. The IMF this time is critical of the policies of the previous regime for inflation, rupee depreciation, and stagnant exports. This time around it gave fresh targets for improving economy to the new government. The government duly complied with the conditions but after two months into the programme it missed the revenue and other targets by hefty margins.

An IMF delegation that visited Pakistan in the third week of September however expressed satisfaction on the performance of the government on the programme. Is it not the same approval that the Bretton Woods institution gave during its previous programme to the immediately past government? Can we trust its judgment?

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