SUMMARY of the Article “Reforms & the IMF,” Rashid Amjad, Dawn, September 14th, 2024
The article emphasizes the necessity of structural reforms for Pakistan’s long-term economic growth. According to the author, Rashid Amjad, the country needs to achieve a growth rate of at least 6% to reduce poverty, unemployment, and regional disparities. However, each time the economy attempts to grow at this pace, it faces a balance-of-payments crisis, resulting in the need for economic reforms. Contrary to popular belief, reforms are not forced upon Pakistan solely by the International Monetary Fund (IMF). Instead, the country requires these reforms to address its irresponsible financial management, including high fiscal deficits, rising debts, and insufficient taxation. The author argues that if the ruling elite accepted the need for reforms and initiated durable economic changes, Pakistan could avoid relying on the IMF altogether. However, the political elite, who benefit from the current system, resist necessary reforms. The article also highlights the IMF’s approach, which sometimes exacerbates public hardships, as well as the loss of confidence from global markets and Pakistan’s international allies, such as China, the UAE, and Saudi Arabia. To overcome this situation, the author urges the formation of a coalition with the political will to implement reforms that have broad public support. This would restore
confidence among international markets and allies and allow Pakistan to break free from the cycle of IMF dependency.
Easy/Short SUMMARY:
The article explains that Pakistan needs to make important changes in how its economy works to grow and improve people’s lives. The country must grow at a rate of 6% to reduce poverty and unemployment, but it often faces financial crises. People think the IMF forces Pakistan to make these changes, but the real problem is how the country manages its finances. The political leaders who benefit from the current system stop these needed reforms. The author suggests that Pakistan can stop depending on the IMF if it reforms its economy properly and gains the trust of global markets and friendly countries.
SOLUTIONS of The Problem:
Implement Sustainable Economic Reforms
The government should begin immediate reforms to tackle structural issues, including improving tax collection, reducing fiscal deficits, and managing debts responsibly.
Create a Strong Political Coalition
A coalition of political leaders with the necessary democratic credentials should be formed to push through the required reforms and win public support.
Rebuild Trust with Global Markets and Allies
Pakistan should work on restoring confidence among international markets and countries like China, the UAE, and Saudi Arabia by showing a serious commitment to economic reforms.
Address Public Hardships
The government should implement reforms gradually, with proper safety nets to minimize the negative impact on the middle and working classes.
Reduce Reliance on the IMF
With durable reforms in place, Pakistan can gradually reduce its dependency on IMF loans and avoid being pushed into undesirable agreements.
Enhance Transparency and Accountability
The government must increase transparency in financial management and hold accountable those who misuse resources or fail to implement reforms effectively.
Encourage Domestic Investment
Creating a favorable environment for domestic businesses through reforms will boost the local economy and reduce dependency on external borrowing.
Focus on Long-term Economic Planning
The government should prioritize long-term growth plans over short-term political gains, ensuring consistent implementation of reforms.
Build Public Confidence
Public education on the necessity and benefits of reforms should be promoted to garner widespread support for the government’s actions.
Strengthen Democratic Governance
Ensuring that the ruling elite have genuine democratic legitimacy will help implement reforms more effectively and gain the people’s trust.
IMPORTANT Facts and Figures Given in the article:
- Pakistan needs to grow at 6% annually to reduce poverty and unemployment.
- Pakistan has repeatedly faced balance-of-payments crises due to poor financial management.
- The ruling elite often block reforms to protect their interests.
- Global markets and allies such as China, the UAE, and Saudi Arabia have lost confidence in Pakistan’s ability to implement reforms.
- The IMF provides financial assistance but often imposes harsh reforms that increase public hardship.
MCQs from the Article:
1. What growth rate does Pakistan need to achieve to reduce poverty and unemployment?
A. 4%
B. 6%
C. 8%
D. 10%
2. Why does Pakistan face balance-of-payments crises?
A. Lack of foreign aid
B. Poor financial management and high fiscal deficits
C. Low exports
D. High inflation
3. Who does the article blame for blocking economic reforms in Pakistan?
A. Traders
B. The ruling elite
C. The IMF
D. Foreign investors
4. Which international financial institution does Pakistan frequently borrow from?
A. World Bank
B. IMF
C. Asian Development Bank
D. European Union
5. Which countries have lost confidence in Pakistan’s ability to implement reforms?
A. United States and Japan
B. India and Russia
C. China, UAE, and Saudi Arabia
D. Germany and France
VOCABULARY:
- Prerequisite (noun) (پیشگی شرط): A thing that is required as a prior condition for something else to happen.
- Disparities (noun) (عدم مساوات): A great difference between two or more things.
- Balance-of-payments (noun) (ادائیگی کا توازن): A record of all economic transactions between residents of a country and the rest of the world.
- Fiscal (adjective) (مالیاتی): Related to government revenue, especially taxes.
- Stringent (adjective) (سخت): Strict, precise, and exacting.
- Subsidised (adjective) (سبسڈی دینا): Supported financially to reduce the cost for consumers.
- Rents (noun) (کرایہ): In economics, the income derived from ownership of a scarce resource.
- Exploitative (adjective) (استحصال کرنے والا): Taking advantage of someone or something unfairly.
- Fallacy (noun) (غلط فہمی): A mistaken belief, especially one based on unsound reasoning.
- Pragmatic (adjective) (عملی): Dealing with things sensibly and realistically.
- Resilience (noun) (لچک): The capacity to recover quickly from difficulties.
- Credentials (noun) (اسناد): Qualifications or achievements that make someone suitable for a particular role.
- Hard-pressed (adjective) (مشکل میں): Facing financial difficulties.
- Sequencing (noun) (ترتیب): Arranging things in a specific order.
- Coverage (noun) (کوریج): The extent to which something is covered or dealt with.
- Disdain (noun) (نفرت): The feeling that someone or something is unworthy of consideration or respect.
- Legitimate (adjective) (جائز): Conforming to the law or to rules.
- Adversity (noun) (پریشانی): Difficult or unpleasant situations.
- Coalition (noun) (اتحاد): An alliance for combined action.
- Tenable (adjective) (مضبوط): Able to be maintained or defended against attack or objection.
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Reforms & the IMF
Rashid Amjad
STRUCTURAL reform is a prerequisite for Pakistan’s sustained economic growth. To put it bluntly, given our population and labour force growth rates, we need to grow at six per cent at a minimum to reduce poverty, unemployment and regional disparities. Yet, whenever we try to do so, the economy runs into a balance-of-payments crisis and faces the threat of a default. To overcome this binding constraint, we need to undertake painful structural economic reforms.
Unfortunately, most people believe that we are forced to carry out stringent economic reforms only because we borrow from the International Monetary Fund, and, had it not been for the IMF, we could have carried on our economic lives as before — paying little to no taxes, using cheap, subsidised electricity, running high fiscal deficits, and letting our domestic and foreign debt from donors and foreign commercial banks pile up. This is not true. We need reforms because we are not prepared to face the fact that we must change the irresponsible way we currently live and run the economy, with the result that we are forced to go to the IMF again and again or risk defaulting and being declared bankrupt.
If we were to accept this fact and start implementing the needed reforms — which, it must be said, even an undergraduate student of economics could draw up — we could say goodbye to the IMF even now. If our finance minister had the confidence and the people’s backing to assert that Pakistan was on its way to implementing tenable, durable reforms, he would not have felt the need to call our ambassador in Washington frequently to ask when the IMF Board was due to meet and approve our requested loan of $7 billion. After all, the IMF is a bank — even if of last resort — and if no country were to borrow from it, the IMF would simply close.
To return to the fundamental question: why are we incapable of carrying out the economic reforms that we desperately need? The standard answer is that the ruling elite — which owns and controls the means of production and thus benefits from the rents of an inefficient and exploitative system — does not allow this to happen.
Why are we incapable of carrying out economic reforms?
To put it another way, as Oxford economist Stefan Dercon argues, the ruling elite has to see the writing on the wall and build a strong coalition to actively support reforms and accept them. Otherwise, they will not survive long. Sadly, Prof Dercon met his Waterloo in Islamabad, where he recently presented a report along these lines at the request of the government of Pakistan, which duly chose to ignore it.
It is a fallacy that the ruling elite and, more importantly, the people of this country, are against undertaking reforms. As history bears witness, we are by nature a pragmatic people and can adjust to change when needed. These traits are what have given us the resilience to survive repeated periods of adversity and prosper over time. The traders who oppose reforms and taxes, primarily because any attempt to do so will require them to document their actual incomes, or the middle class, which cannot pay their mounting utility bills, are certainly not part of the ruling elite.
Who, then, stands in the way?
The first are the political elite, many of whom unfortunately do not have the required democratic credentials to be considered legitimate representatives of the public and now want to earn them by ‘easing’ the hardships that such reforms will impose on the already hard-pressed middle and working classes. The second is indeed the IMF itself, which forces a pace and sequencing of reforms that aggravate public hardship. Its philosophy of providing safety nets to the poorest of the poor makes economic sense, but these nets do not provide sufficient coverage to those in need.
The third, of course, are the global markets and our selected friends — China, the UAE and Saudi Arabia, for example — which have, over time, lost their confidence in our ability to carry out the economic reforms we promise while signing an agreement to do so.
Therefore, let us accept the reality as we face it and form a strong coalition that has the political will to execute the reforms we need, drawing on a political elite with sound credentials, which the people accept and support. This will also bring with it greater confidence on the part of global financial markets as well as among our nervous friends who are reluctant to roll over our debt, leave aside lending us more.
We can then show our disdain to the IMF. Till then, let us not shoot ourselves in the foot — indeed, both feet — by threatening them, as our current political elite is doing. At the moment, we really have no leg to stand on.
The writer is a professor at the Lahore School of Economics and former vice-chancellor at the Pakistan Institute of Development Economics.
Published in Dawn, September 14th, 2024