Fasih Uddin. Pakistan under IMF Shadow.
Mahmood, Zafar
Fasih Uddin. Pakistan under IMF Shadow. Islamabad: Institute of
Policy Studies, 2008. Paperback. 128 pages. Price not given.
Pakistan like many other developing countries has been experiencing
both financial and fiscal instability. This is mainly because it has
miserably failed to generate sufficient resources required for its
economic development. Consequently, to supplement its meager domestic
resources, it has been mostly seeking foreign assistance. At times when
'friends of Pakistan', for their own ulterior motives, such as
support for the cold war and war on terror, have helped Pakistan through
project and programme aid, it has kept striving to move towards a higher
path of economic growth despite poor governance and mismanagement of the
economy by its planners and economic managers. At other times, when the
'friends' have been slow to coming forward, Pakistan has
looked for financial aid from international financial institutions
including the International Monetary Fund (IMF) and the World Bank.
These institutions always attach stringent conditions to financial
assistance. As a result, these institutions remain (implicitly)
instrumental in the formulation of short- to medium-term economic
policies of Pakistan, with outcomes that are always considered as
sub-optimal.
This concise book focuses on the Pakistan-IMF relations in a
historical perspective and skilfully provides an analysis of issues that
have always dominated these relations.
The author examines the compulsions that have frequently led to
resorting to IMF arrangements--the circumstances that have led the
country to fall back to IMF again and again, with increasing the degrees
of IMF involvement in Pakistan's economic management and
policy-making.
The first chapter of the book is written by Khurshid Ahmed. This
chapter critically reviews the role of the IMF in its relations with
developing countries in general and with Pakistan in particular. The
rest of the book is divided into five chapters.
The central argument is that the IMF approach has not been based on
economic and financial prudence; it is often influenced heavily by the
political agenda of the advanced nations. Pakistan's necessities
have forced it to be a part of this global agenda.
On the question of the influence of the IMF on the policies of
aid-receiving nations, it is generally observed that the IMF supports a
country at the request of the Member State which selects the specifics
of the programme, whereas Pakistan's official stand is that it
always follows a 'home grown' agenda. The IMF authorities
claim that policy changes designed are sufficient to overcome the
balance-of-payments problem and fiscal imbalances, and that these do not
cause unavoidable harm to the country.
The book rightly points out that all the IMF programmes assume that
poverty reduction and social development will automatically follow the
adoption of sound fiscal policies. It has never happened! In fact, it is
well-documented that the IMF programmes do not directly address the
issues of employment and poverty but influence them only through the
second-order effects. Had the IMF programmes been successful, the author
maintains, Pakistan would never have reverted to the Fund for aid. He
convincingly argues that the problem lies not only with the IMF
programme but with the implementation of it by the Government of
Pakistan. The government often complies with some conditions and ignores
others, using the leverage of international political environment and
the IMF to push through only those policies that benefits domestic
Elites and lobbies and please the creditors.
The book points out that the decade of the 1990s was the era of
institutional decay in Pakistan. This was manifested through increased
political meddling in the management of public enterprises and
institutions. The IMF programmes during the period were conspicuously
silent and did not push for a stronger emphasis on institutional and
regulatory reforms. Attempts to meet fiscal deficit targets led to the
frequent adoption of ad hoc tax adjustments and expenditure cuts that
often negatively affected the social sector budget, with dire
consequences for the poor classes.
The author testifies that the IMF pressure resulted in designing of
such programmes that promised more than could be delivered, downplayed
the risks, and disregarded focus on real issues. Based on such
conditions, he concludes that economic management in Pakistan continues
to remain under the 'IMF shadow'.
In a nutshell, this book successfully evaluates important events in
Pakistan's relations with the IMF. It reminds us of different
episodes, prescriptions, and outcomes of this relationship. It rightly
warns that if the course of domestic policies and planning does not
change, Pakistan will keep on returning to the IMF. Using a simple
methodology, the author also provides the benchmarks of fiscal deficit,
balance of payments, and stock of public debt, along with critical
success factors that need to be adopted to avoid going again to the IMF
for assistance. Nevertheless, ignoring all this, Pakistan has gone back
to the IMF!
I would strongly recommend this book to all the stakeholders of the
economy, for it provides a simple but critically useful analysis of
Pakistan's relations with the IMF.
Zafar Mahmood
Pakistan Institute of Development Economics, Islamabad.
