After much political bravado over not requiring a bailout from the International Monetary Fund (IMF), Pakistan Prime Minister Imran Khan has had to swallow his pride and accept $6 billion from the multilateral lender to rescue his country’s debt-ridden economy. Over the weekend, the IMF agreed to give Pakistan the financial assistance over a three-year period, provided it undertakes a series of reforms: from an economic overhaul that would involve slashing subsidies, expanding the tax base and raising electricity prices, to a political fix-it plan that would require it to strengthen institutions, combat money laundering and choke terror funding. The aid comes at a time when Pakistan’s economic growth is expected to hit the lowest in nearly a decade, the public exchequer’s finances have dwindled and the country’s foreign exchange reserves have shrunk to levels barely enough to cover two months’ imports. Islamabad needs the money. It should adhere strictly to the revival plan if it is to reduce the risk of an economic implosion that could threaten stability in the region. After all, a “failed state" is the last thing India needs on its western border.
But, there is reason to worry that the IMF plan will not work out. Khan came to power on grand promises of welfare schemes for citizens as part of a “Naya Pakistan" with high-expense programmes, which he’d be reluctant to abandon in an austerity drive. Populism can be costly, and the country has rarely shown good fiscal control. But unless state revenues are raised and expenditure reined in, it cannot expect the base conditions of low inflation and cheap capital needed for a growth revival. Going by Pakistan’s patchy record so far on reforms, this bailout could go the way of past packages and end up wasted. This is the 22nd time, since the country took membership of the IMF in 1950, that it has taken financial help. The last time round, in 2013, it was given $6.6 billion. Little came of it.
There are also fears that the IMF money for Pakistan will find its way into the wrong coffers. The US worries that some of the funds could be diverted to China, a major creditor of Pakistan whose dealings with it are far from transparent. Analysts suspect Beijing of trying to take over infrastructure assets in Pakistan and other South Asian countries—in lieu of debt repayments—as part of a sly attempt to hem India in. If this is indeed the case, then a sovereign Islamabad would serve New Delhi’s interests better, and sovereignty is a function of economic viability no less than defence capability. On this point, the views of Pakistan’s military establishment and political leadership need to converge. Khan needs to put aside his populist urges and forge a consensus on what’s best for the economy. A country that raises its people’s standards of living rapidly is that much less likely to fall into a cesspool of social strife. Peace and prosperity usually go together. This is so, not just for individual countries, but entire regions. Pakistan, of course, has peculiar problems on both counts. But if the world wants the country’s nuclear arsenal kept firmly out of the reach of terrorists, an economic revival is a necessary, if not sufficient, condition.