The IMF has just given Pakistan its latest jolt of shock therapy. By withholding fresh funding until the conclusion of its current $11.3 billion agreement, it has stuck to its guns demanding serious reforms and performance benchmarks. While the government harps on about record remittances and exports, the IMF is unmoved. It calls a foul on the failure to introduce the RGST, continued subsidies to the power sector which it indicates is due for an overhaul and the suborning of the central bank to the dictates of the state.
However, given the fact that certain important sectors remain outside the tax net and an abysmally low tax-to-GDP ratio, particularly in the context of regional rivals, of roughly 10 percent leaves us with few real alternatives other than turning to the IMF. In addition, the government continued provision of energy subsidies further reduces the credibility of the government in the eyes of the IMF. The finance minister has said about Rs 35 billion were spent on oil subsidies in March alone.
With what is often perceived as ideological devotion, international financial institutions (IFI) have spearheaded the drive to spread capitalism. The Shock Doctrine demands an end to state intervention in the free market. Although laissez faire policies are widely discredited in the aftermath of the 2008 financial meltdown, the same model continues to be peddled.
The timing of the blunt refusal is also suspect; as ties with the US have steadily worsened, the IMF stance has correspondingly hardened, despite the fact that economic performance has actually improved in recent months. Although one may speculate that the posture is an extension of US foreign policy; instead of railing against injustice, it is important to recognise that the solution lies within us. If we are to overcome decades of economic mismanagement, we need to show backbone not only in standing up to the IMF, but also by attacking macroeconomic problems head on through political unanimity and resolve.
