p(firstLetter). As Pakistan鈥檚 finance minister, Asad Umar, within a couple of days of announcing that Pakistan will soon get its in 30 years, it is safe to speculate that the discussions with the IMF are not going as well as Pakistanis would like. Umar鈥檚 departure from Imran Khan鈥檚 cabinet has come in a virtual coup that has brought military favourites from previous regimes into office.
The Pakistani military has a view on everything, including management of the economy, although military officers are not trained in economic matters. The generals who really rule Pakistan that the country鈥檚 resources cannot sustain an over-sized military and the periodic wars it initiates. Nor do they see the connection between their preferred policies, such as support for Jihadi terrorism, and declining investment or foreign trade.
Under the generals鈥� influence, Pakistan prides itself as a warrior nation. Investors and traders are looked down upon although in prosperous countries they are seen as drivers of economic growth and prosperity. Politicians and civil servants are frequently sent to prison for signing projects with foreign investors, along with cancellation of those contracts.
Tax collection because land-owning politicians, often beholden to the military, do not agree to paying taxes. Loss-making public sector corporations, which provide lucrative post-retirement jobs to military officers, are neither shut down nor sold off even though their privatisation has been part of the promised reforms offered each time Pakistan borrows from the International Monetary Fund (IMF).
Economies grow amid stability, rule of law, enforceability of contracts, and security for both capital and the capitalists. None of those are available in Pakistan. Instead, policies are often driven by myths, such as the that billions of dollars of 鈥榠ll-gotten money鈥� belonging to Pakistanis is lying in foreign banks that can be confiscated and repatriated by an 鈥榟onest鈥� (read pro-army) leadership. Or, the that multi-billion-dollar projects like huge dams can be built by raising donations from well-meaning Pakistanis.
Pakistan鈥檚 military-driven economic decision-making is based on 鈥�Jazba鈥� (passion, spirit, and strong feeling or emotion) and Chanda (donations). In economic matters, Prime Minister Imran Khan has been a civilian advocate of the Pakistan military鈥檚 simplistic paradigm. His assurances to Pakistanis that they should not worry 鈥� 鈥淎ap nay Ghabrana Nahin hai鈥濃� have become a joke or a legend, depending on which side of Pakistan鈥檚 political divide one stands.
But economists look at hard numbers and are seldom swayed by the belief that God makes special provision for nations led by honest patriots. That is why Khan had to beg for from Saudi Arabia, China, and the UAE to stave off a balance of payments crunch soon after coming to office in the hope that this would preclude his government from having to go to the IMF. That money is now running out.
Turning to the IMF is the economic equivalent of a sick individual being in intensive care. Considering that Pakistan has spent 22 years in the last three decades in the IMF鈥檚 intensive care, the country鈥檚 economy obviously suffers from some serious ailment. This might be the time to reflect on the source of the disease rather than focusing on the symptoms of the latest bout of illness.
Pakistan has battled budget and trade deficits for years. Its exports and tax revenues have failed to increase sufficiently, and its foreign currency reserves have never risen beyond the value of a few months鈥� imports. Pakistan has often borrowed heavily to make up for insufficient revenues and exports, increasing sovereign debt. In recent years, that has led to onerous external debt payments and a weak rupee.
Pakistan鈥檚 repeated knocks on the IMF鈥檚 door come whenever the country faces a balance of payments crisis. Pakistan has 18 times since 1972. Compare that with only in the same period. Pakistan鈥檚 IMF borrowings ran to an estimated $19 billion, while Bangladesh鈥檚 dealings with the IMF were a modest $2.7 billion. With rising exports, Bangladesh has not sought help from the IMF since 2015.
The comparison with Bangladesh is important because Pakistan鈥檚 Punjabi elite looked down on what was their country鈥檚 Eastern wing from 1947 until the Bengalis successfully fought for independence in 1971. On the eve of its independence, Bangladesh was more populous, more illiterate, and much poorer than Pakistan. It now has a smaller and more literate population and its GDP, which stood at $6 billion in 1972, to over $249 billion.
While Pakistan invested in its army and nuclear weapons, Bangladesh invested in its people. Its literacy rate rose from per cent in 1971 to per cent in 2016, putting Pakistan鈥檚 literacy rate in 2018 (up from 22 per cent in 1971) to shame. The more literate Bangladeshis create a better human capital pool, which in turn allows their country to produce value-added goods.
While Pakistan still sells cotton yarn to the world, Bangladesh exports garments that fetch higher prices. Literate Bangladeshi tailors produce garments that meet foreign buyers鈥� specifications; as a result, cotton textile exports of Bangladesh, which does not produce cotton, exceed in value against those from Pakistan, which is one of the world鈥檚 major cotton producers.
Instead of addressing these fundamental issues, Pakistan鈥檚 generals constantly search for a well-connected international banker, multi-national corporation executive, or a former World Bank official who would straighten Pakistan鈥檚 balance sheet with a few more loans or donations. That keeps the Jazba and Chanda cycle going but does not create a healthy economy.
Just before he was forced to quit, finance minister Umar had been in the magazine Euromoney, promising to end Pakistan鈥檚 addiction to the IMF. Ironically, the same magazine had General Pervez Musharraf鈥檚 finance minister, Shaukat Aziz, making the same promise while anointing him as 鈥楩inance Minister of the Year鈥� in 2001.
Euromoney, which has sometimes been of 鈥渟urviving on soft advertorial鈥� and whose 鈥渧arious annual awards seemed weighted towards clients that had bought the most advertising鈥� also 鈥渆ncouraging signs of a sustainable period of growth鈥� in Pakistan鈥檚 economy in April 2017, just before General Qamar Bajwa pulled the rug from under former Prime Minister Nawaz Sharif鈥檚 feet.
If the army鈥檚 meddling did not allow previous IMF programmes to pave the way for sustainable economic growth in the past, it is unlikely that their latest efforts at engineering will result in anything better.
A new finance minister might be able to borrow money from the IMF on different terms than the outgoing one. But at the end of the day, Pakistan will have to address its huge military burden, poor social indicators, and unreliable investment climate or remain on life support.