Neoliberalism & austerity: revisiting economic policy—I

Unlike the routine analysis on the lines of listing a number of financial, and administrative bottlenecks facing economic institutions, and underlying organizations and markets, what is necessary is for the economic policymakers to start listening to the serious criticism of the very economic philosophical underpinnings established as the so-called ‘sound’ neoclassical, or related neoliberal, and related in turn, the austerity – used here in the context of its usage in economics literature for referring to aggregate demand squeeze policies, and not employing the word as routinely used for referring to rationalizing expenditure – basis of economic policy.

Although voices have risen ever so loud over the decades, at least since the 1980s, and especially in the wake of Global Financial Crisis (GFC) 2007-08, and later on as the climate change crisis fast unfolded, and the serious misgivings of neoliberal, and austerity policies in light of their acute shortcomings in properly dealing with issues arising from the aggregate supply shock due to climate catastrophes, Covid-19 pandemic, and conflict, may that be Ukraine War (2022), and recent Middle East (ME) conflict.

Yet, there is shockingly lack of attention in policy discourse to the misgivings of neoliberal, and austerity policies, while highlighting the challenges facing the economy, either from domestic policymakers, for instance by both ministry of finance or State Bank of Pakistan (SBP) over the years, or from International Monetary Fund (IMF). In fact, apparently, there has been not much need felt to even provide a defence by policymakers to these misgivings, as a possible basis for continuing the same economic policies that have not provided any sustainable solution, and even short-term benefits of macroeconomic stability have mostly come at a high economic growth cost.

Reference the Finance Minister’s reported depiction of economic performance to the standing committee on finance of the National Assembly (NA), whereby as per May 8, Business Recorder (BR) published report ‘Key indicators on track despite ME tensions: Aurangzeb’ in which there is no indication of the negative fallout of following monetary, and fiscal austerity policies to deal with an otherwise primarily an aggregate supply shock due to the Middle East (ME) conflict, and as was witnessed in the wake of Covid-19 pandemic, the and Ukraine War. On the contrary, the fragilities being created by lack of green investments, low-level social sector-, and welfare spending that these austerity policies have produced over the years remain the missing potential counter-arguments to an otherwise quite a comfortable economic picture (wrongly) depicted by the finance minister (FM), which is not much different from scores of FMs before him.

Hence, as per the report the FM indicated, for instance, ‘Finance Minister Muhammad Aurangzeb, speaking during the committee meeting, said Pakistan’s financial position was significantly stronger compared to previous crises. …He said Pakistan had successfully reached a staff-level agreement with the IMF, which had already been endorsed by the Fund’s management. …The finance minister said exports had posted growth on both monthly and annual bases, while remittances and IT exports also continued to rise. He added that the country was expected to remain in a current account surplus, and foreign exchange reserves were projected to reach the equivalent of three months of imports by June. Aurangzeb stated that despite a difficult global and regional environment, Pakistan successfully issued USD 750 million in bonds and was also planning to launch a USD 250 million Panda Bond during the current year. The finance minister acknowledged that petroleum imports had increased the import bill, while inflation remained a major challenge for ordinary citizens. However, he maintained that the government had taken measures to control inflation and preserve macroeconomic stability during the crisis. He also said economic growth for the current fiscal year was expected to remain between 3.7 percent and 4 percent.’

Another viewpoint needs attention to this otherwise naïve approach being taken by policymakers, which, in turn, will help lay basis for analysing the above-mentioned comments on economy in that light. An April 2026, ‘IBON International’ published report ‘Austerity in the Global South’ is critical of austerity policies, and in that light discussed specific experience of Pakistan, Argentina, and Zambia. The foreword pointed out, for instance, ‘Austerity is a great obstacle to people-centered development. The austerity paradigm shapes elite-led states to privatise social services, cut public spending, lower labour rights, then expect big businesses to “fill in the gaps”– a vicious cycle of dependence on foreign capital and the inability to provide for needs. It burdens working people with more regressive taxes, squeezing wages and incomes in order to pay foreign debts – to the benefit of powerful lenders. In forcing countries to “tighten their belts,” austerity deepens the decades of wealth drains from global South peoples and territories towards global North elites.’

Specifically, with regard to the implementation of austerity policies in individual countries, the report, for instance, pointed out: ‘The experiences of Pakistan, Zambia, and Argentina, despite their distinct geographic and cultural contexts, demonstrate a strikingly uniform pattern of economic subjugation driven by IMF conditionalities. In all three countries, the “austerity playbook” — characterised by fiscal consolidation, subsidy removal, privatisation of state assets, and labour flexibilisation — has failed to deliver sustainable growth or debt reduction. Instead, these measures have systematically dismantled public safety nets, eroded national sovereignty, and entrenched a cycle of poverty that disproportionately affects the working class, women, and marginalised communities. In Pakistan, the removal of energy subsidies and the reliance on dollar-denominated capacity payments have led to soaring electricity costs and chronic load-shedding, pushing millions below the poverty line. …In each case, the IMF’s insistence on “market-determined” solutions has prioritised debt servicing over human welfare, resulting in erosion of public services, gendered burdens and regressive revenue measures.’

Policymakers, including the Finance Minister, must realize that decades of austerity and neoliberal economic policies—driven by ‘Chicago Boys’-styled influences in domestic and IMF circles—have failed to produce sustainable macroeconomic stability, or inclusive, green, and resilient economic growth.

Hence, under the influence of these policies, overemphasis on aggregate demand squeeze policies through adopting monetary austerity – that is raising policy rate – and fiscal austerity – in terms of pursuing primarily surplus, for instance – firstly, does not provide sustainable basis to the issue of twin deficit. On the fiscal account it means that low-level public investment does not allow building a sustainable, green, and resilient basis for economic growth, which, in turn, is important for providing sustainable growth in aggregate supply. Therefore, a lack of aggregate supply not only negatively impacts employment – with obvious consequences of causing likely increase in poverty – it also hurts domestic resource mobilization effort.

Not only does lower growth cause a diminishing impact on domestic production, it also results in negatively impacting exports, along with hurting prospects for increasing foreign direct investment (FDI), given lower public investment creates lesser basis for both domestic and foreign investment; not to mention lack of aggregate demand also sending a negative signal for enhancing aggregate supply.

(To be continued)

Copyright Business Recorder, 2026