EDITORIAL: The IMF’s approach to reforming economies that seem perpetually trapped in its programmes is proving ineffective — Pakistan is a prime example. Increasingly, global economic policymakers, who often serve as the IMF’s unofficial watchdogs, are recognising that the Fund needs to rethink its framework for countries stuck in its cycle.
Development economist William Easterly, in one of his papers, for example, highlights how World Bank and IMF structural adjustment programmes disproportionately harm the poor.
While these programmes often lead to rising corporate profits, they simultaneously increase poverty and suffering. As previously noted in these lines, Nobel Laureate Joseph Stiglitz, in an article co-authored with another economist, pointed out that a group of 22 financially distressed countries, including Pakistan and Ukraine, has become the largest source of net revenue for the IMF, with their payments even exceeding the Fund’s operating costs.
Building on these critiques, William Easterly, the former economist at the World Bank, has emphasised the crucial link between inclusive governance and economic development.
He argues that democracy empowers individuals to make choices and holds governments accountable for providing essential services, which are vital for long-term progress. His work highlights the transformative potential of participatory decision-making processes, underscoring how democratic systems can create sustainable development by ensuring that people’s voices are heard.
Easterly’s ideas also attract attention to a critical problem: providing financial support to regimes that lack electoral legitimacy can saddle developing countries with what is known as “odious debt.” This type of debt, taken on without the consent of the population or for their benefit, raises the question of whether the state should be held liable for it. While multilateral lending agencies like the IMF and World Bank avoid overt political conditionality within their mandates, their programmes often enforce austerity measures and impose burdensome taxes on citizens.
In the absence of democratic legitimacy, these actions can exacerbate grievances, risking further resistance and instability.
Pakistan’s experience underscores a fundamental truth: the IMF primarily serves the interests of the elite, sustaining entrenched power structures while imposing immense costs on the majority of the population. This arrangement conveniently aligns with US State Department’s objectives. There’s also a growing divergence in perspectives between development institutions, such as the United Nations, and structural lenders like the IMF and World Bank.
The UN advocates for increased spending on education, healthcare, and infrastructure to improve the socio-economic conditions of countries like Pakistan. In contrast, the IMF remains focused on ensuring these nations can meet their immediate trade and debt obligations, with little regard for long-term consequences.
Pakistan has been under IMF programmes almost continuously since the 1990s, yet its solvency issues remain unresolved. The country has been teetering on the edge of economic default, while the IMF’s standard prescriptions have only led to rising poverty, the erosion of the middle class, worsening social indicators, and increasing income inequality.
This approach must change. Recently, discussions with the IMF have raised the possibility of ending federal government funding for public universities, with international lenders suggesting these institutions should become self-sustaining corporate entities.
The idea is to free up public resources for investment in compulsory and elementary education. This aligns with broader discussions between Pakistan and the IMF on federal-provincial fiscal relations. Pakistan urgently needs to invest in human capital and infrastructure to build a foundation for sustainable growth, but that requires fiscal space.
Yes, there are serious governance issues and inefficiencies in public spending, but the solution lies in addressing these problems — plugging leakages and ensuring better public service delivery — not slashing or halting essential spending. Reducing investments in education and infrastructure could do more harm than good. It is, therefore, about time the IMF rethought its policy framework and learnt from its mistakes.
Pakistan can no longer afford more austerity in the absence of drastic reduction in current expenditure of the government; the risk of social unrest is growing, and the capacity to withstand further spending cuts is diminishing.
Copyright Business Recorder, 2024
Comments
Comments are closed for this article.