Even before Pakistan’s 23rd Program with the IMF concluded a statement from the US Government encouraged Pakistan to go for a new Program with the IMF. There was another statement by the US Government carried by the Pakistani media on 3 May 2024 giving its green signal both to the Government of Pakistan (GOP) and the IMF for a new program. What is US interest in Pakistan’s continued borrowings from the IMF? The US has not been very receptive to giving Pakistan state of the art armaments, civilian nuclear technology, etc, which would have added to our economic and strategic wellbeing and strength. But it is very helpful in leading Pakistan towards another program with the IMF. The purpose of this article is to explore the rationale for US and GOP policy of entering into a new program with the IMF. What would be the consequences of further borrowing from the IMF? And will the conditionalities imposed on Pakistan allow the economy to grow and generate a surplus, which can be used for debt servicing? IMF’s stabilization policies have been found to stifle growth, which could lead to default. In this article I will throw light on IMF dictated revenue and expenditure policies of the GOP to explore whether they would lead to a reasonable growth rate, generating a surplus which can be used for servicing our debts. I will also try to examine whether the GOP and the IMF are working on creating a willful default or acting in folly.

But before I study the revenue and expenditure policies of the GOP let me view the case of taking Pakistan to the IMF.  First alarm bells ring by the great interest revealed by the US in leading us towards another program with the IMF.  Whenever US has needed Pakistan’s help it has preferred to give some “financial benefits” to Pakistani individuals in return for benefits the US receives from Pakistan. Why is the US now inclined to help Pakistan to attain economic stability and prosperity? Moreover, a study by Mansoor, Baig and Lal (2020) reveals that Pakistan’s foreign debts were sustainable till 2019, but have since become unsustainable. Why the US which is the biggest shareholder with 17% shares in the IMF not worried about its money and that of its western allies given to a country which cannot return it?  Moreover, why better alternatives which will increase growth while servicing debts being ignored?

The lack of mutual trust between Pak-US raises serious questions about US eagerness to take Pakistan to the IMF.  My mind also goes back to Condoleezza Rice’s 2001 statement that the US has a plan for Pakistan’s nuclear program. Does the US plan entail taking Pakistan’s foreign debts towards unsustainability, leading to default and denuclearization? And then through IMF conditionalities make stabilization so harsh that there is no growth. No growth or low growth means that there will be no employment opportunities for 65% of the population which is less than 30-year-old. This means that no economic surplus will be generated which could have been used for debt servicing, leading to default. And default would open negotiations between Pakistan and the US on some give and take, ultimately resulting in Pakistan handing over its nuclear arsenal, especially the longest range Shaheen-III missiles with a range of 2,750 kilometers?

Let us now examine GOP’s policies to raise revenues in the country. GOP has constantly been increasing tariffs on electricity, gas and petrol. These are increasing the cost of production, giving rise to galloping inflation, which the IMF and GOP try to control through raising the interest rate, which at 23 % is the highest in the world. Although it has been pointed out ad nauseam that prices are rising due to cost push inflation, the situation is getting worse as the cost of doing business is increasing due to hike in the rate of interest. The resulting increase in prices, leading to declining growth rates, layoffs, deindustrialization, drying up revenue generation which could have been used for debt servicing. The increase in prices of utilities might sound like impacting the economy only, but has a geo-strategic effect through impacting default on external debt servicing and ultimately denuclearization.

Moreover, Government of Pakistan’s policy of selling 40% shares of a profitable strategic entity like the OGDC to UAE will result in transfer of these assets abroad. Pakistan is also being converted into a minority shareholder in Riko Diq where currently Pakistan and Barrick Gold hold 50 percent shares each. By selling shares to Saudi Arabia from Pakistan’s shares, Pakistan will be turned into a minority share holder, while Barrick Gold will become the majority shareholder. The handing over of our gold mine to Barrick Gold, a foreign company, that will transfer its total profits and revenues abroad, courtesy of the very liberal foreign exchange regime crafted by Moeen Qureshi and his “Chicago Boys” in 1993. Pakistan’s revenue generating sources will thus dry up, leading to default and ultimately denuclearization.

Let us now examine the expenditure side to see how these policies will generate revenues or dry them. While the incidence of revenue generation in Pakistan is entirely on the middle, lower and poor classes of the population due to indirect taxation, the major beneficiary on the expenditure side are Pakistan’s affluent classes and foreigners. These through increase in remuneration, perks and privileges to the parliamentarians, judges, bureaucrats, Governor State Bank, commercial bank presidents and senior officials, etc.  Also through payment of pensions to retired civilian and non civilian bureaucrats abroad in $s. And the hiring of foreign or Pakistani experts residing abroad. While the wealthy classes are the major beneficiaries of GOPs expenditure policies, the major victims of expenditure cuts are the middle, lower and poor classes on account of reduction in health, education and other expenditures consumed by the poor. All the resources and expenditures on wealthy Pakistanis and foreigners will exit the country, drying up revenue generation, leading to default and ultimately denuclearization.

The recent wheat scandal brings to the fore the total disregard of GOP towards the very survival of our farmers and the local population. In-spite of having a bumper wheat crop, GOP imported wheat from Ukraine resulting in loss of $1 billion, when we have to literally rub our noses to get $1 billion from the IMF.  This will also necessitate our going to the IMF for a new program. A few years back the former Governor SBP distributed $3 billion to some people whose names he is not obliged to disclose under the amendments made to SBP rules to make it “autonomous”. This and other extravagant and lavish spending by the GOP are the homework to prepare Pakistan for another program with the IMF, accept severe conditionalties for petty amounts from the IMF. The same strategy manifests in Pakistan offering a salary of Rs. 4 billion to a foreign cricket coach.

The foregoing shows that all the lavish expenditures on salaries, pensions, perks and privileges to the wealthy Pakistanis and foreigners is allowed under the IMF austerity program. These extravagant payments to wealthy Pakistanis and foreigners are allowed under the IMF austerity program as austerity is only for the people of Pakistan. It is quite permissible to squeeze their sweat and blood only to splash it on wealthy Pakistanis and westerns who own majority shares in the World Bank and the IMF. Severe austerity has to be practiced in Pakistan, because if this money stays in Pakistan it would result in wealth creation through backward and forward linkages and virtuous cycles, which would generate revenues, part of which can be used for debt servicing.

Pakistan a country created in the name of Islam, is leading the fight against Allah and its Prophet as it has the highest rate of interest in the world at 23%.  And this when we have a pious Hafiz Quran as the COAS. Since 59% of our revenues were used for interest payments in 2022-23 which comes to 73% of tax revenues. And of the taxes collected by the Federal Board of Revenue 90% are going towards payment of interest to commercial banks. This messing up of Pakistan’s public finance is being done in the name of financial discipline advocated by the IMF. Since the SBP has been made ‘autonomous’, GOP cannot borrow from it, and as a result it is borrowing at market rates from commercial banks, resulting in payment of 90% of the taxes collected by the FBR to commercial banks. Imagine the fiscal space available to the GOP if it didn’t have to borrow at market rates from commercial banks. IMF appears to be on a mission to kill mosquitoes not through the use of a mosquito spray but a machine gun!

Whether the GOP and the IMF are committing acts of folly or obediently following Condoleezza Rice’s denuclearization strategy remains to be addressed. The performance of successive GOPs has convinced many experts to conclude that GOPs poor performance cannot be attributed to folly. Many water experts believe that the GOP is on board in Indian attempts to divert the flow of Ravi River to India. There is also consensus among experts and lay persons that those in the corridors of power in the previous setup compromised on Kashmir. And the evidence narrated in this article clearly shows that the IMF and the GOP are not practicing austerity. They are generating revenues from the middle and poor classes of Pakistan and splashing them on wealthy Pakistanis and foreigners. Since both the wealthy Pakistanis and foreigners’ assets are stashed abroad, together with the massive amounts exiting the country to service debts and interest payments, these would also exit the country and would not be available for wealth creation in Pakistan. If the incidence of revenue generation was from wealthy Pakistanis and the expenditures were directed towards middle and lower income groups, these expenditures would have created backward and forward linkages and virtuous cycles, ensuring revenue generation. A certain percentage of these revenues could have been used for debt servicing, precluding default and denuclearization. Academics and intellectuals need to address the all important question: why Muslim leadership which believes in Allah and the Hereafter is compromised, while most of the non believers stand steadfast to protect their national interest?