IMF programmes’ progress report: some reflections—II

At the same time, the ‘IMF Country Report No. 26/101’ should have included disaggregated data with regard to urban and rural poverty to reflect better the economic performance of rural agriculture/farm-based industry economy, and urban commerce with regard to retail/service sector, given as per the same brief rural poverty is a little more than twice that of urban poverty.

Here, based on new measure determining poverty line, with figures representing FY25 situation, rural poverty as per the same ‘Poverty & equity brief’ stood at 55.1 percent, while urban poverty was 26.6 percent. It strongly appears that following acute aggregate demand squeeze policies, when a more balanced approach should have been adopted to tackle elevated inflation in the wake of Covid-19 pandemic, and the Ukraine War, which led to increase in poverty, only to drop a bit in FY25 as compared to FY24 by 2.1 percent.

READ MORE: IMF programmes’ progress report: some reflections—I

In addition, much-needed government support should have been provided to farmers in terms of agricultural inputs, better price discovery, and provision of not only continuous procurement facility over the years by the government, but also an appropriate level of procurement price, especially when during this time the country faced catastrophic flooding in 2022, not to mention the likely significant negative impact on agriculture expected due to immense flooding again in 2025 and, in turn, rural poverty in particular due to the very underlying nature of farm economy more exposed to flooding than urban economy, which, in turn, is likely to appear in FY26 poverty numbers when released.

Similarly, the IMF Country Report like the poverty numbers does not take the most recent unemployment rate. Hence, the Report uses the 2020-21 Labour Force Survey (LFS) number at 6.3 percent, while as per Table 2.45 titled ‘Percentage of population by employment, sex, and rural/urban, Census 2023’ of the ‘7th Population & Housing Census 2023’ report, sub-titled ‘First ever digital census’, the unemployed rate stood at 10.9 percent, or approximately 11 percent, which is close to twice the rate indicated in the IMF Country Report.

It needs to be pointed out then, as against the claim in the IMF Country Report that ‘Pakistan’s policy efforts under the EFF arrangement have delivered significant progress in stabilizing the economy and rebuilding confidence amid a challenging global environment, including the ongoing Middle East war. …’ just by taking these two most recently available numbers for poverty (based on revised measurement criterion used by World Bank), and unemployment, the success of the EFF programme loses a lot of gloss in terms of performance. In fact, the over-board austerity and overall Neoliberalism-based EFF programme have had serious misgivings in terms of its advocacy for a limited role of government, and reduction in public and private investment, including negatively impacting transition to green economy, and overall resilience enhancing aims of the RSF programme.

The Report points out that ‘The authorities remain committed to program policies and objectives, including… an appropriately tight monetary policy to ensure inflation expectations remain anchored in the face of volatile commodity prices.’ Here, it needs to be pointed out that inflation is primarily due to aggregate supply shock, and it is not possible to significantly anchor inflation expectations through monetary austerity. On the contrary, reducing supply bottlenecks and subsidizing prices, requires a counter-cyclical policy, which means adopting non-austerity policy to enhance public and private investments, which, in turn, will likely rein-in supply side-driven inflation.

Moreover, enhancement in productive-, and allocative efficiencies is needed to improve the impact of investment towards sustainability, inclusivity, and resilience.

In addition, administrative controls should be placed to restrict non-essential imports, while deep regulation, supervision, and co-creation of markets with the private sector are done to check over-profiteering, and for overall improving price discovery by reducing transaction costs, along with reaching greater productive-, and allocative efficiencies. Hence, a tight monetary policy does not anchor inflation expectations, but given repeated past experience, adds to rising inflation beyond the very-short time horizon, if at all that is even reached, given inflation remains quite sticky due to significant feeding into overall inflation through the imported- and cost-push inflationary channels that tight monetary policy (or monetary austerity) brings.

Therefore, following aggregate demand squeeze policies takes a long time to lower inflation, and at a very high economic growth sacrifice cost – as has been the case time and again in the country’s history over the last many decades – and without meaningful non-neoliberal, non-austerity, counter-cyclical reforms on the aggregate supply-side, any reduction in inflation quickly dissipates, and inflation mostly bounces back as austerity pressures are eased.

(To be continued on Wednesday)

Copyright Business Recorder, 2026