The need to approach IMF

ByIzzat Hayat

works in the private sector


January 2, 2023

The need to approach IMF

Izzat Hayat takes a look at a problematic matter

During the Second World War, the allied powers parleyed at Bretton Woods in America and came out with a detailed corpus for regulating monetary arrangements between states as the old monetary order was taken to have irretrievably broken down. In this context, the need to approach IMF was created in line with Bretton Woods arrangements that devised rules for commercial and financial relations between the states and it became the first of its kind monetary order that still continues though many of its tenets have been watered down by the ravages of time and pressures of events. One aspect of the Bretton Woods system required countries to guarantee convertibility of their currencies into US dollars to within 1% of fixed parity rates with the dollar convertible to gold bullion for foreign governments and central banks. Since it was also envisioned that greater cooperation among countries in order to prevent future competitive devaluations, therefore, IMF was established to monitor exchange rates and lend reserve currencies to nations with balance of payments deficits.

It is widely known that Pakistani economy has consistently failed to achieve the needed diversity to maintain and enhance the fiscal and monetary space. The economic conditions in the country always remained on tenterhooks and the financial players never succeeded to remove the structural weaknesses of the system and their sustained failure made the weaknesses grow to the level that they became chronic issues completely besieging the economic process of the country from where it has not been able to come out. Pakistani economic developments have been subjected to quirks that upended the entire economic performance of its economy. The inherent weakness facing the national economy implied that Pakistan is no stranger to IMF bailouts as the country consistently suffered from external payments crisis. The structural difficulties facing all aspects of economic activity are a curious amalgam of socio-economic and cultural facets of the Pakistani polity and their persistence cogently brings to fore the lack of consensual approach to all economic problems.

It is now widely recognised that Pakistani economic policy makers have created myriad problems for the so-called economic development they planned and carried out in the country and almost all such efforts were and are oriented towards looking outward for financial resources instead of concentrating on harnessing indigenous resources. The result has been exceedingly heavy reliance on long-gestation projects under the public investment garb that finally saddled the country with high levels of foreign debt. Pakistani planners developed a fetish for grandiose schemes such as constructing roads for interlinking the country but the problem confronted here was the unavailability of the technology required to undertake such products creating high demands for foreign currency to import adequate components. This process is not only confined to infrastructure projects but is spread over almost all schemes devised in this respect.

Pakistan badly suffers from energy deficiency and the economic planners had always relied on imported fuels to produce energy harmfully adding to the import bill of the country. The problem does not end with imported fuel but is extended to the vast requirement needed for the job as machines and equipment underpin power production such as turbines at hydel power plants and equipment at LNG, coal and furnace oil plants. Still this is not the end of the story as importing technical personnel for such projects also come from abroad as is evident by the Siemens Corporation building two power generation plants near Karachi for which the German engineers are employed with the Chinese personnel deputed to work for installing the projects. It must be borne in mind that such a practice not only deprives Pakistanis from gainful employment but can also create technical issues once the foreign personnel component withdraws.

The economic planners utilise rhetoric to advertise that they are progressing towards employing indigenous resources to produce energy but this boast falls in the face of the fact that even decades after the construction of the Mangla and Tarbela dams Pakistan still needs foreign experts to solve critical issues related to them. To add to the woes, Neelum-Jhelum hydel power project, for which the Pakistani people were made to pay surcharge through their nose and which was widely advertised as an indigenous source of energy went down due to a fault just a year after it was commissioned and to remove the fault foreign experts were called in as Pakistani experts failed to have a clue about where the fault lied.

What is driven home here is that almost every economic development activity in Pakistan comes laden with the need for foreign exchange, and after years of careless planning and callous wastage, the country has now become desperately short of dollars. It is more than evident that the economic edifice of Pakistan is based on imports and lack of imports imply that the entire country will come to a standstill. It is very clear therefore that Pakistan’s dollar earnings will never be enough to pay for the imports of the country keeping on increasing balance of payment deficits and the country left with no way out but to keep on visiting the IMF. TW

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