Pakistan’s IMF bailout: Good money after bad again?
The International Monetary Fund’s tough conditions for its loan to Islamabad are unlikely to work without strict vigilance over the use of all its funds. Even then, can Pakistan’s economy really be rescued?
The International Monetary Fund (IMF) has imposed tough conditions on Pakistan for disbursing instalments of the $7 billion loan that Islamabad negotiated with it under its Extended Fund Facility (EFF). Such IMF credit comes not so much with avuncular indulgence as with tough conditionalities meant to stabilize macro-economic variables.
The IMF is also giving Pakistan a climate resilience loan of $1.4 billion. We should wish the country all the fortitude it can summon to swallow that bitter medicine.
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It is not in India’s interest for any large poverty-ridden nation to implode in its neighbourhood. Pakistan has a quarter of a billion people, 40% of them below the World Bank’s poverty line for lower-middle-income countries, 42% of them illiterate and multitudes apparently in thrall to distorted versions of Islam.
This is the 13th time Pakistan has tapped the IMF for bailout funds since 1991, when India last took a loan from the multilateral lender. Back then, New Delhi used IMF conditionalities to justify tough decisions that ruffled vested interests but opened up India’s economy to competition, both external and internal, and spurred economic growth.
The IMF has done well to caution Pakistan that continued hostility towards India would damage its reputation and derail its recovery from perpetual crisis. India’s defence minister Rajnath Singh made a fine point when he said that funds going to Pakistan under whatever guise or for whatever purpose amount to terror financing. Money, after all, is fungible.
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If external funds are available to stabilize Islamabad’s finances and cushion the adjustment process as energy prices shed subsidies and selective state patronage masked as industrial policy is withdrawn, the resources needed for such constructive ends could go elsewhere. Diverted funds may reach what the Pakistani deep state calls ‘strategic depth’ acquired through unconventional methods.
The cost is borne mostly by India, which has suffered relentless terror attacks. As a lender to Pakistan, the IMF must closely monitor the end use of not just the funds disbursed under the EFF, but also of the local funds freed up by their infusion. If there was ever a case for extra-tight oversight, this is it.
Economic dynamism calls for macro stability and the development of human capital via quality education and healthcare. These are only the necessary conditions, not sufficient ones.
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Cultural attitudes towards risk and failure are vital to entrepreneurship. By one hypothesis, Pakistan is short of social groups accustomed to making money by venturing it. Effective financial intermediation is a tough ask anywhere in the world, but tougher still in a place where an important form of return on capital—interest on debt—is seen by many through a prism of sin versus virtue.
Conservative values keep women out of the labour force. The female labour-force participation rate for Pakistan is only 24%, far below Bangladesh’s 44%, Indonesia’s 53% and the world average of 49%. This deprives the economy of a sizeable part of the human effort that can be mobilized to generate value.
Meanwhile, concentration of asset ownership worsens its woes of underdevelopment and contributes to keeping its democracy stunted. Addressing such problems calls for an emancipatory agenda and the political will to pursue it. An IMF stabilization programme is a far cry from what’s needed to transform Pakistan, but perhaps it can stave off despair. And we could do with less hopelessness around us.
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