KARACHI: Though the IMF package has provided immediate relief from the stress that the national economy was under, it would be naive to view it as a long-term source of stability. To realise the dream of sustainable development that may ensure a better life for the people at large, a set of economic policies leading to capital formation at a heightened pace is an absolute necessity.

Unless industry and agriculture pick up growth, it would not be possible for the economy to deliver, or for the macroeconomic indicators to look upwards.

Undeniably Pakistan has faced more than its share of complex problems in the last year or so. A default on external liabilities at this point would have only aggravated the intensity of the crisis. It would have further tarnished the image of the country, unnerved the investors, sent jitters in the corporate sector with international trade links and scared away potential donors.

The resulting outward flight of capital and skilled manpower would have led to further economic slowdown, more closures, retrenchments, depression, panic and chaos.

The government perhaps was forced by circumstances to turn to the agency despite the fact that the country’s past experience with the Structural Adjustment Programme is not a happy one when there used to be pressure from the IMF review team all year round. The ministries used to be preoccupied with report-making for donors, neglecting their regular tasks. The last programme, however, was completed satisfactorily. The argument that the character of the agency has undergone a change is sometimes offered to defend the deal. This is far from truth. The agency lends not out of love or some moral concerns; it lends because it is in the business of lending.

It is equally hard to buy that in 2008 it was the borrower and not the creditor that dictated the terms of $7.6 billion rescue package. The old adage — Beggars can’t be choosers — holds good even today. The government can claim credit for drafting a stabilisation plan on borrowed IMF vision, but the assertion that the priorities of the IMF are perfectly synchronised with the long-term economic objectives of the country is far-fetched by a long shot.

Maybe the government needs to be reminded that it celebrated when it finally graduated out of the last IMF programme and announced that it would try never to return to the IMF. That it has can only be taken as a failure.

One cannot argue with the need for maintaining economic discipline as stressed in the stabilisation package. The discipline, however, must not be at the cost of national economy. The thrust needs to be on growth without losing grip on the purse strings.

The situation is tricky. The twin deficit of current account and external trade must be pulled down to match the condition of restoring fiscal discipline.

To meet the people’s expectations of economic relief from a democratic government, there is an urgent need of economic expansion.

For containing the current account deficit, either the government will have to generate more resources through better tax mobilisation or cut expenditure.

Coping with the situation requires out-of-box solutions to bridge the income-expenditure gap. The policy for higher resource generation needs to be crafted with utmost care so as not to stifle productive investment or shrink the consumer market.

To control expenditure, the government must desist from axing public expenditure on development projects in crucial areas of physical and social infrastructure.

The government needs to be careful in handling public money and must check wastages. There is no justification for reckless expenditure through deficit financing. The policy of forcing the State Bank to lend to the government shall come to an end. Unfortunately, it was continuing even when inflation was at an all-time high and the rupee was on a dangerous slide, losing value by the day.

The State Bank of Pakistan has repeatedly criticised the government for borrowing over Rs600 billion from the central bank that led to distortions, costing the economy dearly.

It would be apt for the government to make public how and where the borrowed amount was spent. The information becomes all the more relevant because the elected government slashed the development expenditure that has disproportionately hurt the vulnerable segments of population.

The people of Pakistan are not big fans of the IMF; they have never been. They are suspicious of the World Bank-IMF twins, linking them to economic hardships, to withdrawal of subsidies leading to dearer inputs and essentials, rightsizing that leads to unemployment and to more expensive utilities. Their impression is based on their experience of the period of structural adjustment programmes of 1990s. They were told that pains of the programme will be followed by gains. When user charges were introduced in public hospitals, poor patients were told that it would lead to the broadening of the health cover in the country. The health cover has actually shrunk for the poor while the user charge has kept going up, forcing many to turn to soothsayers and quacks in place of doctors.

The big business in Pakistan is happy with the IMF deal for they understood its clout in the world of business. Besides they perceive the agency as an institution that can keep a check on irresponsible politicians. For their business interests, the perception of economic viability of the country is also important and a default on external liabilities could have created difficulties in trade activities. They, however, do not approve of the tight monetary policy that they feel should now be eased to encourage investment. They are also mildly critical of IMF’s opposition to relief package in Pakistan when the governments of the developed world are directly intervening with massive financial injections to save businesses in their respective countries.

The medium and small business houses are sceptical as their hope of government support package dashed when Pakistan decided in favour of entering the IMF programme. They feel that the deal may lead to erosion and not expansion of the industrial base in the country. They feel that after the withdrawal of subsidies and upward revision of levies and taxes, the cost of production might go up, rendering their projects unviable.

The rural sector fears that under the IMF influence, the government might increase taxes on agriculture, dampening the bright prospects of turning higher growth under the democratic government in this long-neglected sector.

The service sector is found to be indifferent. They do not perceive any direct bearing of the deal on their lives. They understand that in the absence of documentation, there is little scope for effective implementation of a service tax even if the government decides to introduce it. The service sector constitutes more than half of the national GDP and yet, for all practical purposes, falls outside the tax net.

The 1997 Far Eastern crisis busted the myth of one-sided view of meritorious foreign investment. At whim, the footloose foreign investment left Far-Eastern shores for greener pastures, plunging the whole region into an economic chaos. The current financial crisis that was sometimes being equated to the great depression of 1929 exposes the intellectual and moral bankruptcy of the mighty rich corporate heads in the financial sector. There is no escape from the fact that the blue-eyed asset managers failed to foresee what was coming and misguided the investors to huge losses. It might have different ramifications for various nations across the globe.

Perhaps it is too early to comment on its full impact on the global economy. But it did instill a new lease of life in International Monetary Fund (IMF), an institution that lost relevance as even the developing world had opted out of its tutelage by the middle of the first decade of the current millennium.

There is little doubt while the current global financial crisis has created difficulties for multiple economies, it has, indeed, brought the lending agency back in business.