The International Monetary Fund (IMF) Resident Representative in Pakistan, Esther Perez Ruiz, stated that the latest reforms under the new Extended Fund Facility (EFF) are likely to steer Pakistan away from “boom and bust” cycles and establish a macroeconomic model of sustainable growth.
“One thing that will put the country on a sustainable path this time is the sense of ownership, which was missing in the 2013 and 2019 programs,” said the IMF official during a panel discussion titled “Economic Resilience in Challenging Times,” on the inaugural day of the 27th Sustainable Development Conference (SDC) and Second Sustainability Investment Expo (SIE) organized by the Sustainable Development Policy Institute (SDPI).
Ruiz noted that over the last year, a remarkable return to macroeconomic stability was observed. “We have seen growth resume, inflation decline dramatically, and Pakistan record its first surplus primary balance in 20 years.” She added that reserves have increased, placing Pakistan in a more comfortable position to honor its external liabilities.
This improvement indicates growing confidence in Pakistan’s policy directions, which have become more consistent. Consistency is critical, and it represents a remarkable turnaround, she added. The IMF official further stated that transitioning from renewed stability to stronger, more resilient growth that benefits more segments of the population requires a commitment to maintaining these macroeconomic policies. It also requires breaking away from the boom and bust cycle and shifting towards a growth and development model that promotes an efficient public sector and enhances market competition.
There are several goals under this EFF program. One is revenue mobilization, which must become more efficient; sectors that were not contributing should now contribute. Another goal is the formal inclusion of provinces through a national pact, which will operationalize the 18th constitutional amendment to raise revenue by provinces. The national financial pact also enables the devolution of critical social spending.
As per the reform agenda under the EFF, reducing distortion and state intervention in the economy is necessary to realize and enhance jobs and growth. She mentioned that energy sector reforms aim to make the energy sector sustainable by making energy more affordable and collecting taxes from sectors that previously did not pay taxes, which are the focus of the current EFF program.
Najy Benhassine, Country Director of the World Bank in Pakistan, and Ruiz, the IMF Resident Representative, emphasized the importance of implementing reforms across various sectors to achieve sustainable development in Pakistan. They highlighted the necessity of incorporating agriculture, retail, real estate, and other key industries into the tax system. “Recent data indicates that Pakistan’s economic indicators have improved significantly following the previous IMF program, with the inflation rate dropping from 38 percent in May 2023 to a current rate of 7.2 percent,” Ruiz noted.
Dr. Najy Benhassine from the World Bank said that Pakistan was not a country in denial. “This is a country that keeps going through ‘boom and bust’ cycles. We already know the causes behind those cycles for Pakistan, but we cannot seem to get out of them,” he said, adding, “the problem for me is that Pakistan keeps going back to the same thing.”
“I have no hesitation to say that yes, the current government is on the right track. There are energy and fiscal reforms in place. But whether the recovery will stay on track once these reforms are implemented is the big question,” he added.
Dr. Samuel Rizk, the Resident Representative of UNDP-Pakistan, noted that Pakistan was fortunate not to experience any major disasters during 2023-24. He appreciated the positive role of the private sector in fostering sustainable development within Pakistan. He said that in 2022, Pakistan experienced devastating floods that resulted in an estimated $30 billion in damages. “Unfortunately, the nation may struggle to recover if it encounters similar disasters, including those linked to climate change, in the future. This is primarily due to the lack of financial support, as the country has yet to receive any aid despite the commitments made at the Geneva conference last year,” he concluded.
Speakers in the panel discussion emphasized the critical need for Pakistan to prioritize comprehensive economic reforms. They argued that every sector must be incorporated into the tax system, with no subsidies provided to any particular industry. There is also an urgent requirement to boost both investment and exports. To capitalize on the potential of the youth demographic and enhance rural human resources, they said, a more effective strategy must be implemented on health, education, and climate change initiatives to achieve the Sustainable Development Goals (SDGs) and ensure long-term sustainability.
Professor Dr. Shantayanan Devarajan from Georgetown University, USA, presented an insightful critique of the crises affecting both Sri Lanka and Bangladesh, highlighting that both nations are suffering from the repercussions of misguided policies that have exacerbated their economic challenges. Professor Dr. Devarajan, who participated virtually, juxtaposed the economic and political turmoil in Sri Lanka and Bangladesh as a case study for South Asian countries that had a perplexing situation amid spiking growth rates since their progress in the 1990s.
Dr. Dushni Weerakoon added that Sri Lanka’s decision to pursue an International Monetary Fund (IMF) program significantly worsened its economic difficulties, alongside other contributing factors. She emphasized that the political economy was overlooked, resulting in increased taxes and a depletion of foreign reserves, and argued that accepting the IMF program at that juncture was a mistake.
Dr. Shanta underlined that despite per capita income doubling along with rapidly increasing secondary education enrollment and a plummeting child mortality rate, countries like Bangladesh and Sri Lanka faced widespread public protests against the democratically-elected governments, leading to the ousting of popular leaders. He added that the Sri Lankan crisis was primarily due to the denial of economic crises brewing from the sitting government’s short-run growth-focused decisions and reluctance to restructure its debts with the IMF, which increased pressure on all sectors feeding into the economic outlook.
The protests, Dr. Shanta said, only focused on the administration and governance in those countries, whereas Bangladesh was consistently a strong performer in terms of growth and manufacturing, poverty reduction, education, and health. However, persistent high levels of corruption, bad governance, and the cost of denial in Bangladesh downgraded its growth rate, he added.
Institute of Policy Studies of Sri Lanka (IPS) Executive Director Dr. Dushni Weerakoon said the political capital in Sri Lanka could not be ignored while dealing with its economic crises. She said the then Prime Minister of Sri Lanka, despite the fact that the country was coming from an IMF program that led to increased taxes, decided to lower the taxes to embrace an increased economic outlook.
Dr. Weerakoon said the political leadership of Sri Lanka lost its political capital in the 2022 polls after implementing the IMF recommendations in the program. However, the economic revival in Sri Lanka was beyond expectations as the government embraced an above-business-as-usual approach to address the crises.
Speakers acknowledged that while Pakistan has made notable strides in enhancing its socio-economic conditions in recent months, the establishment of consistent long-term policies remains essential for sustainable progress.
