OPINION: Growth model and IMF conditionalities — II

In doing so, the authorities, the like-minded multilaterals like IMF, and World Bank, among others, there strongly appears to be continuous march going on in policy circles, with deep blinkers to this opposing research that is highly critical of neoliberal and austerity assault. This, in turn, has not allowed the country to break away from the ‘boom-bust’ economic growth cycles, and that too very short spaced.

The problem is not that it is a consumption-oriented, not investment-oriented, growth model because that is only looking at the ‘consequences’ and not dealing with the two main ‘causes’ that lead to these consequence, and which are mainly following neoliberal, and austerity policies, being practiced quite actively in Pakistan since around late 1980s – given since then the country has gone through more than two dozen IMF programmes which, at the same time, pales the argument carried in policy circles as an otherwise quite baseless cliché that during the first two decades of the country’s active involvement with IMF programmes, the country was notoriously called ‘a one-tranche’ country.

The following discussion, in the light of the findings of the book, and the deeper base of research for decades that such findings also rely on – in addition to their own, very meaningful research – elucidates as to why these two causes do not allow creating competitiveness, reach meaningful level of inclusive economy, both of which lead to lack of investment-oriented nature of economic growth.

Here, as an renowned economist Mariana Mazzucato puts it as an ‘entrepreneurial state’ making substantive public sector investment – like the moonshot policies adopted during President Kennedy’s tenure, and years of public investments into US’s ‘Defense Advanced Research Projects Agency (DARPA)’, or under ‘New Deal’ policies under President Roosevelt – and where government creates meaningful partnerships in shaping private investment, and co-creates markets that it is possible to have inclusive growth, one also based on, and in turn, then moving towards meaningfully open economy, as successfully done by China, for instance.

On the contrary, that transition never happened in Pakistan, and instead the neoliberal assault since late 1980s resulted in ever diminishing role of government, and without this transition to competitiveness and inclusive growth, with high level of productive, and allocative efficiencies is yet to happen.

Growth model and IMF conditionalities — I

Moreover, this resulted in the country having little resilience against shocks, for instance, in the shape of international commodity price shocks, and suffered frequent balance of payments crisis, faced recurring twin-deficit problem, and debt distress situation.

Here, with little capacity to deal with these problems sustainably in the wake of a weak political voice not appropriately pushing through hard reforms that dismantle elite capture and, in the process, also not being able to enhance better price discovery of both production, and wages/income/pension, lower transaction costs, and effectively deal with issues of asymmetry of information, and corruption practices, and reach a much-more income based tax system (and not consumption-heavy taxation as currently is the case) that help reduce inequality and poverty, what is needed is much-more symbiotic, mission-oriented role of government that co-creates markets, and provides meaningful, purpose-driven governance, and incentive structures.

To start with, the book pointed out that during 1980-2019 - that is during four decades – Pakistan saw the most IMF conditionalities – which are neoliberal, and austerity-based, and price-shock therapy in nature – for any country at 1,303! In this regard, the book pointed out where only ‘Armenia, Kyrgyzstan, Malawi, Pakistan, Romania, and several West African countries emerge as countries with highest overall conditionality burdens: all had repeat loans that carried a high degree of conditionality.’

In fact, as per the same book, Pakistan topped the highest number of conditionalities faced by any country, for that year, at 87 in 1989, and 61 in 1990, second highest at 98 in 2002, and at 87 in 2003, and third highest at 54 in 1992, and at 60 in 2015; where the highest number of conditionalities for any year, for any country ‘…peaking at over 140 conditions for Russia in 1998 and Ukraine in 1999’.

Here, it is worth mentioning that the consequence of Russia following significant number of price shock-therapy, neoliberal, and austerity based IMF conditionalities can be seen from the findings from the book ‘How China Escaped Shock Therapy: The Market Reform Debate’ that China showed immense economic growth and overall development as compared to Russia by instead following a growth model that was based on a gradual price and trade liberalization agenda, employing at the same time meaningfully deepand active role of government – unlike what authorities, and multilaterals have been suggesting in reducing the role of government to only a ‘fixer’ of market failures, and at most a ‘facilitator’ of private sector, and employing a sharply tuned liberalization, and privatization agenda in terms of time and scope by successfully employing innovative, mission-oriented, and symbiotic-relationship based policies like ‘dual-track’ pricing mechanism, and ‘mixed-ownership enterprise’ (MOE) model.

It will not be wrong to say that Pakistan is neither learning from US’s Alexander Hamiltonian ‘non-sound’ economic policies, nor state capitalist non-shock therapy policies, or social democratic policies of Scandinavian countries, which in essence are all policies that do not follow neoliberal – similar to the so-called ‘sound economics’ policies, reached in part also by partially misreading Adam Smith during colonial times – and austerity-based policies.

(The third part of this multi-part series on articles will appear on Friday)

Copyright Business Recorder, 2025