The Federal Government believes that in the wake of the International Monetary Fund’s clearance of the last $102 million tranche of a three-year $6.4 billion Extended Fund Facility (EFF), the Pakistani economy is free from the IMF and its loan restrictions. The last time we came this close to being free of the IMF was when former finance minister-turned-prime minister Shaukat Aziz boasted of ‘breaking the begging bowl’.

That it would break the ‘begging bowl’ was one of the promises made by the PML-N, but just three months after it took charge of the government, it ended up at the IMF asking for a loan. We can give the government the benefit if the doubt, that it inherited an economic mess and needed the IMF then, but this time the proof will be in the indicators of economic performance in the next two years (or maybe even the next seven considering the huge incumbency advantage the party has).

So has the economy improved since 2013? Yes and no. The recovery is precarious as it has a lot to do with lower oil prices, foreign assistance and remittances from Pakistani expatriates, rather than the program prescribed by the IMF. External debt and liabilities have gone up (from $58 billion in 2014 to $69 billion by March 2016). The higher the debt, the narrower the funds available to the government to make plans to create jobs, provide subsidies to boost business and agriculture, or provide welfare. Already, debt servicing is the single largest component of public spending, with external debt payments accounting for 24 percent of our GDP.

The successful completion of the eleventh programme has been declared by the government as ‘highly satisfactory’ on the basis of comparative economic and financial stability. However, independent economists are less than impressed. The outcomes of the program have not done much to improve the spending powers of the government.

What must be remembered is that no IMF program has ever really “improved” things. The programmes are designed not to drive an economy to growth but to short term stability. The loans are also not given to the poorest of the poor countries, but only the poor who have potential to pay back money to the fund, or a good ‘credit history’. That the IMF is a ‘fund’, is a misnomer; it functions more like an investment bank, and shareholders, mostly the OECD countries, secure a nifty profit over time. As long as there is a return to the investment, it is of little matter whether the country met or did not meet IMF’s specified targets. Thus Pakistan has been missing targets, yet still getting the cash injections.

The programs encourage austerity, meaning a government with a tighter fist. The less the government can spend, the more the GDP of the state will contract, if not offset by increasing private consumption and investment. In Pakistan, and across the world, this model has been difficult to apply, and grossly unsuccessful. When government spending contracts, so does the whole economy. Unless there are tax incentives, subsidies on electricity and energy, and water resources available, industry and agriculture will take a hit. This is why we have seen economists disenchanted with such “neo-liberal” policies. The formal model is hardly applicable in real world conditions.

The alternative is a stimulus package- the government decreases interests rates so that people can take loans and invest them. The public makes a profit and pays back the loans to the state or bank, which accumulate interest and thus can give more loans. To further encourage investment, governments launch subsidies, a policy not incompatible with increasing the tax net (like the IMF says), but while keeping the flow of money going in the economy so people are able to pay the taxes.

In the west this is an economic ideology usually held by the center left, or left liberals. What Pakistan follows is the neo-liberal or conservative economic school of thought, like that of the Conservative Party in the UK or the Republicans in the US, to make a rough comparison (not to be confused with political and religious conservatism). This shift to a ‘stimulus’ economy is what is called the return to Keynesian economics, or moving to the left, with welfare packages to enhance saving and investment, like in the Scandinavian states.

The days of IMF austerity have to end, where the state over-taxes people without creating new jobs and economic activity in the system. Then the only way out is more foreign injections through loans or investment. The problem is the inertia of our economists. New solutions will get buried under dominant ways of thinking, bureaucratic delays, misconceptions about what the “left” or “liberal” means, and a lack of transparency of real economic figures.

Lastly, from looking to international investments we have to move to the domestic sector so that we can export more and generate more income. To do this the government has to encourage domestic savings and their investment into the domestic market. Only if people are making incomes, can there be incomes to tax, and taxation is what will create space for the government to provide welfare and facilities.