Towards an improved IMF programme

'[Pakistan's] GDP growth fell to a little under 4 percent a year over 1988-2000, compared to almost 6 percent in the two previous decades, with a sharp slowdown in capital formation. Export growth slowed to under 3 percent a year, against over 10 percent in the 1970s and 1980s. Poverty rose steadily, according to most measures, after two decades of decline, and by the end of the 1990s close to 30 percent of the population lived below the poverty line, against less than 20 percent a decade earlier.' - 'Evaluation of the prolonged use of IMF resources', Independent Evaluation Office (IEO) of the International Monetary Fund (IMF; 2002)

IEO, which is an independent evaluator of IMF programmes, in its report back in 2002 highlighted the weakness of the IMF programmes, since for instance under the programme economic growth in Pakistan was sacrificed disproportionately against aggregate supply objectives, with significant negative consequences for poverty.

Virtually two decades later, a global financial crisis in-between, austerity drive by the 'troika' in Europe, a number of more times Pakistan - like many other prolonged users of IMF resources - entering programmes subsequently, and recently a deep recession in the wake of the pandemic, have unfortunately all not been enough to move the IMF away from its neoliberal/neoclassical basis of programmes. Sadly, the 'Chicago boys' on the other side of table, policymakers in many developing countries, have not still had enough economic history at hand to convince them of significant negative consequences of neoliberalism.

It is quite shocking though that given the strong recessionary shock on both aggregate demand and supply sides of most economies, including Pakistan's, this year as the pandemic unfolded, where the IMF has kept its scheduled tranches in abeyance since such conditionalities cannot be met in a recession instead of understanding the need for revisiting the structural adjustment conditionalities of the current programme with Pakistan, reducing their squeezing aspect on the aggregate demand side. While the IMF did support the country through another window in the midst of pandemic, yet stalling the programme tranches has not only affected much needed financial flows for a foreign exchange-starved country, but also showed the absence of IMF's intent or plan to revisit the neoliberal basis of its programmes.

As the current negotiations with the Fund are to enter formal talks soon, as reportedly indicated by the Advisor on Finance recently, it is therefore important for the policymakers to successfully persuade the IMF to renegotiate the conditionalities of the programme away from structural adjustment and overly demand-side squeeze, to more a balanced approach, which not only allows economic growth objective, but also meets the income inequality and poverty objectives, especially in a time when poverty and income inequality has increased during the pandemic.

Moreover, the renegotiated programme should allow a 'green' economic recovery - one that incentivizes greater opportunity for government to enhance public investment in view of the reduced capacity and uncertainty aspect of private sector in the wake of the pandemic, but also that allows government to regulate markets to more 'green investments' - with lesser carbon-footprint, and one that laysa deeper basis for sustainable growth in the long term - so that more jobs in renewable energy can be created in an overall effort to undo the heavy charge of climate change crisis.

More than reaching a programme that helps on the side of 'environmentalism', it is important to make taxation more progressive for those on the higher ends of income ladder, and in the same vein more forgiving for the people in the lower income brackets. In the current programme, this could mean less focus of meeting the challenge of circular debt crisis through tariff rationalization, and more through creating time and financial space through greatly de-linking the related prior actions for release of subsequent tranches with energy tariff increases, and allowing greater scope for targeted energy subsidies to benefit household consumers and producers alike on the aggregate supply side, creating in turn greater momentum on energy sector reform by introducing conditionalities on the reform side.

Here, conditionalities in relation to domestic resource mobilization (in addition to the progressivity aspect) should also be revised to reduce the burden of taxation. There is also the need for taking steps that reduce petroleum levy and profit margins in the pricing of petroleum products. What the pandemic, years of neoliberal assault and the hastening of the climate change crisis have taught the mankind an economic policy; according to which, markets need more intervention, and governments have to be more creative so that economic policies work for all, and not just a handful. The future of democracy is also linked to efforts aimed at changing this neoliberal mindset.

(The writer holds PhD in Economics from the University of Barcelona; he previously worked at International Monetary Fund) He tweets@omerjaved7

Copyright Business Recorder, 2020