Pakistanis must accept the fault is not in their stars

Television anchors, politicians and other opinion makers, all of whom shape public sentiment, often place the blame of Pakistan's current economic woes on the International Monetary Fund (IMF). This is one of the contributory factors adding to the hostility among segments of society towards the revival of the IMF’s $6 billion Extended Fund Arrangement (EFF) program after a hiatus of almost half a year.

The facility will only be revived after the passage of legislative bills recently tabled in the parliament, which comprise the finance amendment act and the State Bank Amendment Act 2021. The first one will introduce general sales tax (GST) levy at a uniform rate across the board and end many tax exemptions, all adding up to additional revenue to the tune of around Rs343 billion to the national treasury. The second law will enhance the independence of the central bank from the executive arm of the government and make its primary objective one of controlling inflation.

Legislation to increase the autonomy of the central bank has generated much controversy regarding misplaced fears that it will cede SBP’s sovereignty to the IMF. In effect, the government is accused of surrendering national sovereignty on money matters to a cabal of international players with malign intent towards Pakistan. Notwithstanding the exaggeratedly dramatic rhetoric, nothing could be further from the truth.

The proposed changes in the functioning of SBP are very much in line with best practice for central banks across the globe, where functional and administrative autonomy with clearly defined policy goals, helps ensure accountability of the institution towards meeting its objectives. It must be emphasized that it is the government of Pakistan that will appoint non-executive directors of the board, the governor and deputy governors, and they can be removed for serious misconduct in accordance with procedure laid out in the law.

Pakistan has had a history of governments borrowing and spending with little qualm in taking the country ever closer towards a debt trap. The State Bank Amendment Act 2021 will preclude the government from being able to borrow from the SBP, which will not only instill fiscal discipline on present and future governments, but is also essential for meeting the central bank’s primary objective of controlling inflation. An autonomous central bank will greatly help ensure that the country has sound money, which is a prerequisite toward ensuring a sustainably growing economy.

It is to be expected that people are resentful of any external force that is perceived to be dictating terms that add to people’s hardship, but Pakistanis would do well to remember Cassius’ refrain in Shakespeare’s play "Julius Caesar": "The fault, dear Brutus, is not in our stars, but in ourselves." 

Javed Hassan 

The revival of the IMF EFF structural adjustment program is vitally important for the nation. Many other countries have undertaken such programs and undergone difficult reforms. Having successfully implemented the programs these countries have grown from strength to strength. For example, South Korea, a country that is often claimed to have copied the 1960s Pakistani economic development model, underwent an economic stabilization and reform program after the 1998 Asian crises under the aegis of the IMF. It signed upon the stringent strictures of one of the largest rescue packages in the history of IMF and successfully implemented the structural changes necessary.

Many of the elements of the Korean program were not too dissimilar to what Pakistan is required to implement under the EFF. Despite the IMF supported economic adjustments program imposing considerable hardships on the Korean people, it goes to the credit of the policymakers there that they owned the reforms as their own, and explained to Koreans that it was an imperative for inclusive development rather than treat it as an external compulsion, only to be reluctantly complied with.

Many other countries, including India, Britain, Poland, Thailand and Uruguay have also successfully implemented IMF schemes. In almost all of these cases a significant contributory factor in the success of the program that led to sustained economic development thereafter has been the adoption and indigenization of reforms, which has made change much more palatable to the people.

While many may find the covenants attached to EFF as being harsh, without swallowing the bitter pill of structural changes required, the country will inexorably continue to drift from one economic crisis to another, with the greatest burden of these borne by the most indigent sections of society. There are no magic bullets in economics and certainly no miracles, but the path to recovery and sustained long term growth can only be attained through tough reforms that invest in the people to improve productivity as well as build a robust export base.

It is to be expected that people are resentful of any external force that is perceived to be dictating terms that add to people’s hardship, but Pakistanis would do well to remember Cassius's refrain in Shakespeare’s play "Julius Caesar": “The fault, dear Brutus, is not in our stars, but in ourselves.” It is also important to note that Pakistanis are fully capable of correcting such faults to chart a course towards prosperity.

– Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.

Twitter: @javedhassan