Can Pakistan break free from the IMF's shackles?

 Pakistan has been grappling with a protracted economic malaise for the last few years, characterized by a mounting inflation rate that has surged by nearly 50%. The nation's economic backbone is heavily reliant on debt and financial rescues, with the International Monetary Fund (IMF) holding the mantle of the primary creditor. The preceding administration of Pakistan Tehreek Insaaf inked a $6 billion pact with the IMF, spanning three years, but its impact on the country's financial woes remains unclear. Presently, the incumbent government is in discussions with the IMF for a $1.2 billion agreement aimed at stabilizing the economy, with the outcome anticipated imminently. The critical query at the crux of this matter is whether Pakistan can ever extricate itself from the shackles of IMF's influence.

One might ponder why the finance ministers of Pakistan, who have graduated from illustrious institutions such as Harvard, Cambridge, and MIT, are unable to steer the nation's budgetary affairs, whereas an average housewife in Pakistan can capably manage her household finances, despite the constraints of meager earnings. Can the administration not stipulate a revenue target and execute expenditures within the parameters of the budget, much akin to ordinary Pakistani housewives? Is it not feasible to establish a threshold beyond which certain expenses are prioritized over others? The answer to this conundrum is straightforward: third-world countries such as Pakistan are constrained by the Free-Market Economics framework, rendering it challenging for them to govern their international trade, even in the face of massive trade deficits. This model restricts the discretion of governments regarding trade policies, obligating them to align with the directives of the system, thereby placing the economic fate of the country in the hands of a third party. The third party then determines issues such as imposition of tariffs on international trade, commodity prices, taxation, and inflation rates.

Upon perusal of statistical data, it is evident that the current tariffs on international imports in our country stand at a mere 8.64%, in stark contrast to the exorbitant 46% imposed during the 1980s. This drastic decline prompts one to question the underlying factors that led to this phenomenon. The answer lies in the establishment of the World Trade Organization (WTO) in the early 1990s, which prompted advanced capitalist nations to eliminate trade barriers and expand their global reach. Pakistan's accession to the WTO in 1995 and its reliance on loans from the International Monetary Fund (IMF) come with the caveat that it cannot impede the principles of free trade espoused by the organization, thereby rendering it powerless to impose tariffs on imports and granting unrestricted access to foreign goods within its borders. Consequently, Pakistan’s dependence on the IMF for its economy and economic policies has led to the inability to earn any revenue from international trade.

Let us comprehend the operational mechanisms of the International Monetary Fund (IMF), its composition, the key actors that shape its policies, and why Pakistan finds itself in a perplexing situation. Primarily, it is crucial to acknowledge that the IMF is not a democratic entity. Rather, it is funded by governments of developed capitalist countries such as the United States, Japan, Germany, France, and the United Kingdom. The amount of funding provided by a country is directly proportional to the voting power it wields in influencing IMF policies. The IMF's Board of Governors comprises finance ministers of these advanced nations, who predominantly steer the fund's policies. These policies align with their interests, which entail the elimination of tariff barriers, thereby facilitating unrestricted sales of products manufactured in their respective capitalist countries worldwide. Astonishingly, no government holds sway over this framework. In the event that a country plunges into a debt crisis due to excessive importation of products from these capitalist nations, which it cannot repay, the IMF's lending program comes to its rescue with stipulated conditions. This policy mandates that the country cannot interfere with the laissez-faire economy. Consequently, the country becomes enmeshed in a vicious cycle of a debt trap, perpetually trapped in its clutches.

Why is Pakistan unable to break free from the constraints of the IMF? The predicament with the IMF's lending program is that the finances granted by it cannot be allocated towards developmental initiatives. In order to grasp this concept, one must fathom the structure of another financial organization, the World Bank. Similar to the IMF, the World Bank extends loans to its member countries, but with a different framework. The World Bank provides project-oriented finances to countries which, in turn, bolster their productive abilities. One such instance of this is the Tarbela Dam, which was financed by the World Bank. There are several other undertakings supported by this international financial institution in Pakistan. On the contrary, the IMF does not bestow loans for developmental projects. Instead, it disburses funds to cover a country's trade deficit. It is reimbursed for the imported goods and services that have already been purchased, thereby restoring international trade.

Let's talk about our future scenario with the IMF. If the current Pakistani government manages to secure a deal with the international financial institution and receives a whopping $1.2 billion, it may not necessarily mark a significant achievement for the administration. This colossal sum of money is unlikely to pave the way for prosperity in the country, nor will it be spent on public welfare or maintained in foreign reserves for an extended period. Instead, the borrowed amount will be used to pay off the countries from which Pakistan imports products. The funds will only serve to settle a few credit bills and facilitate international trade, but the cash will not linger in the country for long. Inevitably, after a few months, Pakistan will find itself grappling with the same trade deficit predicament, forcing it to seek another billion-dollar bailout from the IMF. This vicious cycle will ensnare Pakistan indefinitely, leaving the country in a perpetual state of financial dependency.

Is there a way to overcome this economic crisis plaguing Pakistan? Can Pakistan successfully rid itself of the influence of predatory lenders who shape the country's economic policies, leading to a burden on the common public in the form of exorbitant taxes and skyrocketing inflation? Indeed, there is a viable solution. Pakistan should impose a total ban on imports, with not a single dollar spent on importing goods. There must be a strict redline ensuring that expenditures do not surpass revenues, thus avoiding any budget deficit. While terminating agreements with independent power plants immediately will have serious repercussions, these agreements should be phased out gradually. Additionally, the public should exert pressure on the IMF, protesting against the inhumane inflation that has caused them immense hardships. If millions take to the streets, the IMF will be compelled to reconsider its austere policies and adopt a more flexible approach. By implementing these measures, Pakistan may hopefully break free from the stranglehold of the International Monetary Fund.

written in collaboration with and kind help from Dr. Taimur Rahman