Addressing the effectiveness of panadol tablets on Pakistan’s prolonged economic headache!
Nations frequently find themselves at a pivotal crossroads in economic policy when making decisions that will substantially impact their future. Two crucial issues for Pakistan lurk on the horizon: Will embracing mercantilist policies foster economic growth or strain relations between nations? Equally important, how long will Pakistan remain tethered to the International Monetary Fund (IMF) for economic stability?
IMF assistance to Pakistan may restrict its economic decisions, potentially affecting power rates.
It’s worth noting that the sources have indicated that General Asim, the Army Chief, has hinted at avoiding a new IMF program, citing concerns that the IMF’s assistance might come with restrictions that limit Pakistan’s freedom to make economic decisions, possibly including adjustments to power rates. The opinion that Pakistan has no choice but to approach the IMF for the balance of financial assistance is always backed by an overwhelmingly large majority. Few disagreed and said Pakistan should learn to survive without the IMF.
Pakistan has been one of the IMF’s nine long-term customers. In doing so, Pakistan has developed a financial dependence on IMF assistance. We rushed to the IMF for panadol tablets whenever we experienced headaches. We experience short-term relief but never examine why we experience headaches every two to three years. Stabilizing the economy was never on the radar of our previous governments. It has been noted from prior experiences that the IMF program is not a stabilization program but a destabilization program in which investment and growth decreased, leading to increased unemployment and social unrest in the nation. As a result, the nation never escapes the grip of the IMF program, increasing the nation’s debt. Pakistan faces several challenges: unemployment at 8%, inflation at 29.6%, and low economic growth of 0.5%. The 22% interest rate has also negatively impacted the business climate while failing to achieve its primary goal of limiting inflation. The State Bank of Pakistan only has $8.2 billion in foreign exchange reserves, another problem for Pakistan.
Moreover, Pakistan’s political unrest and security concerns have kept it fragile. General elections in Pakistan are coming up, which could expose a new administration to these difficulties estimated to cost the economy up to 3 percent of GDP annually. Since the new government took charge, there has been internal disagreement about whether to request a bailout package from the IMF.
The economists that favored Pakistan not requesting financial assistance from the IMF stated that it should follow a strict import compression policy to minimize the current account deficit.
Adopting mercantilist policies where the sole focus is on exports more than imports, including tariffs and trade restrictions, may result in disagreements with trading partners and damage diplomatic relations. These concerns could lead to a perception that Pakistan’s approach to economic growth might disrupt existing global trade networks. Foreign investors may be discouraged from entering the Pakistani market, depending on the specifics of its mercantilist policies. Clarity and predictability in economic policies will be important to attract and retain foreign investment. Pakistan’s mercantilism may promote collaboration and cooperation if it aligns with other countries’ economic goals. It might deteriorate diplomatic ties and foster economic competition rather than collaboration. Depreciation of the local currency might also result. A weaker currency can increase inflation and the cost of imported products, reducing the consumers’ purchasing power.
I believe Pakistan should learn to live without the IMF by adopting a macroeconomic strategy focused on the future, not just reducing the budget deficit. Balancing macroeconomic policy’s stabilization and development functions is necessary instead of continuing the same stabilization policy from the 1980s. Over the past ten years, Pakistan has pursued a stabilization policy focusing on reducing the budget deficit. As a result, it has paid a high price for slower economic growth, fewer jobs being created, and more human suffering. Pakistan should have pursued a domestic policy of limiting imports, fostering exports and remittances, luring foreign direct investment, and executing structural reforms as an alternative to turning to the IMF for the balance of financial assistance. In addition, Pakistan needs to adopt macroeconomic policies oriented toward the future and give fiscal policy more of a voice without endorsing loose budgetary discipline. Budget deficit and public debt could rise in the medium term, but they will remain sustainable. Pakistan must restructure its tax administration and tax system and boost the effectiveness of tax administration.
Pakistan can boost self-reliance and resilience by emphasizing domestic policies and diversifying exports, allowing it to address economic challenges independently.
Other nations may see Pakistan’s pursuit of achieving economic stability without the help of the IMF as a sign of its assertiveness and economic self-sufficiency. They might support Pakistan’s initiatives to promote exports and give domestic industries priority, interpreting it as a move towards greater economic autonomy. Pakistan may create a road to self-reliance and economic resilience by concentrating on domestically driven economic policies and encouraging export diversification. This strategy not only lessens reliance on outside financial institutions but also empowers the country to tackle its economic challenges on its terms.
In conclusion, the debate over Pakistan’s economic strategy is timely and critical. Although the International Monetary Fund (IMF) has provided the nation with financial assistance during times of crisis, the over-reliance on the IMF may not be the best long-term solution. Instead, Pakistan should prioritize sustainable macroeconomic policies. The transition to pursuing macroeconomic policies and implementing wide-ranging structural reforms may be challenging. Still, it offers greater prosperity and stability, making it the only path that aligns with the nation’s long-term goals.
“Pakistanis must throw out beggar’s bowl”
The author is a scholar of Peace and Conflict studies at the National Defence University, Islamabad. Her Area of interest is globalization and the great powers of Asia.