The International Monetary Fund is not an icon of economic management even among economists. But it is perplexing to see the convenience with which the IMF is singled out for its ‘severe’ policy advice.

Take the example of the last five years. The Pakistan People’s Party came to power in February 2008, and had to enter into an IMF programme without much respite — the same year. Clearly, the economy handed over by the Musharraf government to the PPP was already in tatters; yet the PPP managed to completely rip it apart.

The average fiscal deficit during the five PPP fiscal years (FY2009-13) was 6.7 per cent compared to a fiscal deficit of 3.6 per cent in the last five years of Musharraf (FY2003-07) in percentage GDP terms. The worsening fiscal deficit was a result of generous redistributive policies, poor power management, compensation to struggling public sector enterprises and high levels of corruption, poor governance and tax evasion which cost the economy the likes of Rs8.5 trillion, as reported by Transparency International Pakistan. Similarly, the trade deficit rose from 5.8 per cent during FY2003-07 to 8.9 per cent in FY09-11 in percentage GDP terms.

If the figures for FY2012 and FY2013 are included, this average would be higher. This rise in trade deficit was a reflection of a worsening energy and power crisis. The level of reserves is now continuously falling and barely enough to cover two months’ imports.

This, along with the weak financial inflows, weak rupee and heavy debt repayments to be made in the coming two years, will force Pakistan to go to the IMF again.

The IMF will advise Pakistan officials to slash expenditures, phase out subsidies, liberalise trade, privatise and/or restructure unprofitable public sector enterprises, and reform tax policy. And a hullabaloo against the harsh policy prescriptions of the IMF will ensue. Censuring the IMF then for suggesting bitter medicine, or even a surgery, to set the fundamentals of the economy right would be ill-advised.

It is unreasonable to expect taxpayers in rich countries to pay for the economic mismanagement, tax evasion and corruption of our elite. When the IMF lends us, it has a right to remind us that there is no free lunch.


Karachi, April 23.