Apportioning all our economic ills to the IMF is the usual IMF-bashing that we enjoy. First, it is claimed that the IMF programme has increased poverty. I would have thought that it was Pakistan’s recent nightmarish experience with galloping inflation when the headline rate of inflation peaked at a staggering 25 per cent per annum that pushed millions into poverty. The IMF programme has helped bring inflation down in Pakistan, not push it up, thereby helping people climb back out of poverty as prices stabilise and start to come down.

Secondly, it is argued that high interest rates are hurting industry and employment. High interest rates are a very minor factor when compared to the crippling effects of power outages. It is difficult to separate out the effects of the two, and other factors such as the security situation and the recent global recession, unless we undertake some sort of “factor analysis.” Nevertheless, having no power to run our factories for up to 18 hours a day must be having serious economic consequences.

Furthermore, it is not clear how high interest rates are. If we adjust for present inflation, a “real” interest rate of around 2 per cent is not high. With inflation on the upside at present and threatening to rise, I see no room to cut interest rates further at this time.

Senior economist Naveed Anwar Khan’s complaint is that while the world is applying stimulus measures to help their economies grow, Pakistan is doing the reverse under IMF advice. This is disingenuous. The global economies, with the IMF, the high priests of fiscal rectitude prodding them along, are indeed implementing strong fiscal and monetary policy-easing measures because most of them have the room to do so. India had, and probably still has, a current account deficit of a little over 1 per cent of GDP with ample foreign exchange reserves, including the gold it just purchased from the IMF. Inflation, while rising, is still low at around 4.7 per cent per annum, although the Indian central bank has already signalled a bias towards raising interest rates to keep inflationary pressures at bay.

Pakistan had a fiscal and external current account deficit of 8 per cent of GDP, an inflation rate of 25 per cent per annum, massive capital flight and vanishing foreign-exchange reserves when it turned to the IMF. It is true that the economy has been brought into better balance since then. The external current account deficit has fallen, inflation has come down, there is fresh public and private capital inflow, asset markets have stabilised and, with surging workers’ remittances and IMF financing, our foreign exchange reserves have been built up to more comfortable levels. But the nascent economic recovery we are witnessing is fragile and tentative and subject to downside risks.

The last thing Pakistan needs is a “double-dip” economic downturn because we do something unwise and precipitate on the policy front. Any easing of macroeconomic policy must therefore be done cautiously.

In actual fact, whatever easing in policy that we have seen has made many economists uncomfortable. The IMF has loosened our fiscal deficit target for this year by arguably more than can be judged to be prudent, and probably will do so again next year. While some easing of the fiscal stance is desirable so as to cushion the economy’s downturn and impart some demand stimulus, a too rapid easing not only harbours the risk of bringing inflation back with a vengeance just as we seem to have beaten it, but will require interest rates to be pushed back up again to compensate both for the easing on the fiscal side and to keep real interest rates in positive territory to control demand, the ensuing flood of liquidity, and inflation. That would be the worst outcome of all.

There is a sensible and well-meaning suggestion to tie all future releases of IMF money to better governance in the recipient country. It may surprise many to learn that efforts to do so in the past have been vehemently resisted by the developing countries themselves, including Pakistan, in the IMF and World Bank Executive Board where such issues some up for consideration and debate.

The writer has a doctorate from Oxford University and has worked at the Planning Commission and the IMF. Email: meekalahmed2@aol.com