Pakistan’s IMF Problem
In exchange for bailouts over the past three decades, Pakistani governments have repeatedly agreed to draconian spending cuts and arbitrary taxes in pursuit of fiscal targets. As a result, the country's economy is as weak as ever, and its state capacity has been hollowed out.
ISLAMABAD – After Pakistan’s recent election, Imran Khan and his Pakistan Tehreek-e-Insaf (PTI) party are now forming a new government. As usual, it will be greeted by an economic crisis. A trip, cap in hand, to the International Monetary Fund seems inevitable.
Pakistan, after all, is an IMF addict. The country has already spent 22 of the past 30 years in a dozen different IMFbailout programs. As the former IMF advisers Ehtisham Ahmad and Azizali Mohammed explained in a 2012 working paper for the Asia Research Center, no American, IMF, or Pakistani official has any incentive to reform Pakistan’s structural economic problems, and so the cycle of bailouts continues.
Unfortunately, few in Pakistan have ever read Ahmad and Mohammed’s paper or debated its significance. If they had, they would know that the IMF’s approach to the country has been a failure. For decades, IMF programs have been undercutting Pakistan’s productivity and growth potential, by eroding governance and state capacity, and creating conditions for ever more rent-seeking and corruption.