OPINION: Growth model and IMF conditionalities — III

The recently released ‘IMF [International Monetary Fund] Country Report No. 25/332’, which contains second review of extended fund facility (EFF) programme, and first review of resilience and sustainability facility (RSF), indicated strong commitment of the authorities in following an otherwise neoliberal- and austerity-based economic agenda.

The EFF programme’s fiscal consolidation which, given the speed and depth of adjustment is in the writer’s opinion more appropriately referred to as fiscal austerity target, in the shape of achieving a primary surplus by end-June 2025 – one of the seven ‘binding’ quantitative performance criteria (QPC), where this specific one was ‘Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees)– of Rs. 2,719 billion (or the same figure taken in negative if the deficit terminology of QPC is followed) was met.

Be that as it may, it is tragically ironic that reaching this surplus was facilitated by, for instance, two exceedingly important areas of economy, economic empowerment of the demos, and overall welfare, and this is spending on health and education. Hence, among the nine ‘nonbinding’ quantitative targets at the macroeconomic level, called ‘indicative targets’ (IT) – alternatively also called ‘indicative benchmarks’ (IB) in IMF programme literature – the ‘Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees)’ was missed.

OPINION: Growth model and IMF conditionalities — II

First of all, it is strange to see, and in turn, leaves in bad taste the priorities of authorities and IMF that such an important target – given it pertains to health and education and for a country that has traditionally been among the countries, which spend, for instance, the lowest proportion of their budgets as a percentage of GDP (gross domestic product, or simply ‘national income’) traditionally on health, with similar trend for education – is not among the ‘binding’ QPCs. Since it was not binding, the same sense of urgency may perhaps could lack, given not meeting a QPC needs to obtain a ‘waiver’ from the ‘executive board’ of the IMF for the IMF programme to successfully go through, and subsequently the tranche – under the current review of EFF, released tranche stood at $1 billion – to be released. Moreover, it was the minimum level of expenditure level that was missed in view of the fact that it was the ‘floor’.

At the same time, it would have made sense to bring QPC on primary surplus to the IT domain, which would have on the other hand not put the government under too much pressure to perhaps curtail spending on health, and education to meet it. An argument here could be that why the revenue side was not enhanced by the authorities but that argument needs to enhance its scope of understanding by internalizing – which the IMF and the authorities apparently do not indicate they do –that strict fiscal consolidation conditionalities over the years under numerous IMF programmes have perhaps significantly contributed to lack of investments in demos in terms of health, and education, reducing ‘political voice’ in the process, which is an important determinant of the strength of push needed to dismantle the hurdles of ‘elite capture’ – that IMF’s own recently conducted ‘governance and corruption diagnostic’ (GCD) report highlighted as being significantly entrenched – in the hard reforms like enhancing tax base, and shifting from consumption-heavy taxation, to (rightly) income-heavy distribution for positive consequences for both revenue, and distributional aspects of economic growth.

This is apparently a serious failure of the IMF programme design, and surprisingly the Letter of Intent (LoI) or the attached Memorandum of Economic and Financial Policies (MEFP) drafted by the government – as documents written mutually or collaborating with the IMF – have apparently no qualms in this regard. On the contrary, the LoI while addressing the managing director (MD) of the IMF indicated ‘Our economic programme, supported by the Extended Arrangement under the Extended Fund Facility (EFF), is bearing fruit and entrenching long-sought macroeconomic stability. Economic activity is growing, inflation is contained, and external buffers are strengthening.’

Growth model and IMF conditionalities — I

It is strange that while the LoI rightly holds a sad tone pointing out that ‘severe floods recently have upended many lives and livelihoods across the country’ the letter has nothing to say with regard to request for toning down of the fiscal consolidation-related QPC, or perhaps for a change showing more ambition for drastically enhancing tax base, and radically shifting from consumption- to income-based taxation for positive distributional, and overall supportive economic growth consequence, so that it can at least uphold the ‘floor’ of spending with regard to health and education. It is hoped that the seeking of waiver on end-December ceiling on primary surplus target, which was subsequently received with the successful second review, would ensure that the ceiling on spending on health, and education-related IT will be met for end-December. At the same time, it is a shame that as per ‘Table 1’ of the IMF Country Report, ITs in this regard were missed for end-September 2024, end-December 2024, end-March 2025, and end-June 2025!

Here, it appears pertinent to mention from the book ‘A thousand cuts: social protection in the age of austerity’ – a book, which has been cited extensively during this article series, given its importance to the topic of IMF conditionalities –something that highlights the importance of IMF fiscal conditionalities on, for instance, health. The book indicated in this regard, ‘In setting the fiscal priorities of borrowing countries through the practice of conditionality, the IMF has played an emphatic role in shaping the design, implementation, and… ultimate outcomes of health policies and systems throughout the world. In the process undermining the universal health coverage.’ Moreover, it needs to be asked of the authorities, and the IMF, given apparently, they have not, as to why an impact assessment of fiscal consolidation conditionalities on health outcomes not been apparently conducted, so as to internalize the results in programme design?

Such a question, in fact, holds a lot of pertinence, given the country has been in more than two dozen programmes since late 1980s, while as pointed out in the same book for instance, Pakistan has been among the lowest group of countries in terms of health spending, both ‘… spending as a share of GDP, a widely used measure of political priorities on health, and spending in per capita terms, an indicator of the substantive health resources available to the population.’ Moreover, the book pointed out: ‘The recommended level of government spending for low-income countries to guarantee a minimum level of key health services for the population is 5 percent of GDP, or per capita target of $86…’ Hence, as per the analysis of the book (in its figure 4.1) Pakistan falls among the countries with the lightest colour shade, or lowest share of GDP spent on health at ‘2 percent or less’, whereby in 1995, and in 2017 Pakistan spent a paltry 0.8 percent of GDP on health! Cuba, a developing country for instance, spent 10 percent of GDP on health in 2017.

(To be continued…)

Copyright Business Recorder, 2025