EDITORIAL: The World Bank in its “Country Partnership Framework” recommends a growth model overhaul arguing that the existing model dominated by public consumption, high levels of debt, low productivity and poor capital accumulation accounts for a rise in income inequality, rise in poverty levels (Pakistan’s poverty levels are a high of 41 percent rivaling Sub-Sahara Africa), and food insecurity and suggested measures to increase investment and productivity.
In the words of the report, “the pace of economic growth and structural transformation has been long stunted by distortive policies that benefit only a few, who have historically coalesced to oppose growth-oriented reforms as well as increase in progressive public spending in human capital and basic services for the poorest.”
Such a damning indictment of previous administrations’ policies nonetheless led the Bank to announce in the same framework a 20 billion dollar country assistance programme over the next decade commencing from 2026.
Pakistan has been the recipient of many World Bank projects and programme (budget support) assistance over the past seven and a half decades, and is currently on the twenty-fourth International Monetary Fund (IMF) programme, hence part of the blame for the existing growth model falls on the lender agencies reflected by their inability to factor in political considerations into their programme designs and set appropriate doable conditions within a specified time frame.
But what is extremely baffling is that given the fact that the IMF has begun dedicating entire sections in recent uploaded documents relating to Pakistan lamenting the failure to implement agreed conditions in previous programmes yet the Fund staff has yet to focus on an obvious condition with minimal impact on the poor: reduce current expenditure that would increase the authorities’ leverage in terms of phasing-out its harsh upfront conditions.
The fact that the current budget was reportedly approved by the Fund staff as a prior condition for the ongoing loan, a budget that envisaged a whopping 21 percent rise in total current expenditure, which supports an economy dominated by public consumption, is inexplicable.
The ongoing IMF programme is focused on severely contractionary monetary and fiscal policies with obvious negative repercussions on growth.
And even though the policy rate has come down to 13 percent, against 22 percent in April last year, the fact remains that this too is more than double compared to our regional competitors and renders borrowing costs too high for the large-scale manufacturing (LSM) sector, which explains why LSM growth registered negative 0.64 percent July-October 2024.
In addition, the Fund okayed the existing tax structure, i.e., a 75 to 80 percent reliance on indirect taxes whose incidence on the poor is greater than on the rich, is again perplexing as it simply raises poverty levels.
It is easy to pontificate and suggest textbook remedies, which are simply not applicable to every country. Pakistani authorities must also bear blame as the selection of their economic team leaders has largely been from the international bureaucratic pool, individuals who may not be as much in synch with the prevailing conditions as their counterparts who have served this country for decades and are fully cognizant of the possibility of success of any reform within a specified time period.
It is, therefore, critical for the lenders as well as the government authorities to engage in a meaningful debate on a programme design as is the case in negotiations between multilaterals and other debtor nations.
For Pakistan authorities till such an agreement is made it is necessary to increase leverage, which is only possible through a massive reduction in current expenditure which would require voluntary sacrifice by the elite recipient sectors.
Copyright Business Recorder, 2025
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