Economic Reform and Growth Prospects: Future Outlook
Fatima, Noor, Economic Review
The change of the state's role in managing and steering the economic activity from the direct to the indirect management under an ambitious programme of IMF Are the people willing to endure economic hardships for the sake of realizing prescribed economic reforms? What should be the first priority for transition?
After the "lost decade" of the 1980s like many other developing countries, Pakistan had been pursuing reforms for economic growth through arduous efforts for macro-economic stabilization and market-oriented structural reforms under structural adjustment programme. The core was stabilization effort concentrated on fiscal adjustment, reducing budget deficits and a scaling down public sector spending relative to the size of the economy. These reforms have involved privatization of state enterprises, financial reform, trade liberalization, and the removal of restrictions on capital movements. The justification for carrying out of such reforms was given that it would foster the economic growth. Now also the 'Standby' Arrangement with IMF is leading towards structural reforms to foster the economic growth. Looking at the past experiences, the question is whether economic growth has indeed accelerated after these reforms? And if the experience of 1990s reforms reflects unsatisfactory results, does that imply that maybe the scope of reform ought to be extended beyond the macroeconomic sphere?
There is no denying the fact that foreign aid conditionality has often persuaded recipient country for policy and institutional reforms apparently seems to benefit the private sector. It is also important to be mindful that the IMF cannot initiate programme but develops a programme for a member country only when that country seeks help. The country is no doubt becomes IMF's client or patient, but not its ward. It is only political and economic institutions of the recipient country, which should determine the economic policy structure, and the nature of reforms that should favor economic growth. Financial needs of a country in distress does not give IMF the moral right to insist on reforms which is not owned by the people and ultimately offsets those processes which have an impact on growth. It must have improved government balance sheets, by shrinking budget deficits, eliminating hyperinflation, and maintaining debt payment schedules, but what IFIs (International Financial Institutions) wanted as a reformer often failed to promote economic growth rather caused increased inequality, therefore again the poor are the worst affected.
The deteriorated economic situation for the last two years in the country has generated a greater concern about who is responsible? Is it just economic mismanagement, which could not maintain the high growth mantra, or it is IFIs whose conditionality has led to this situation. Naturally there is no 'either or' situation but how can we measure the policy effectiveness without interventions of the IFIs. Who defines it? One needs to be sceptical that there are many actors trying to influence the policies and institutions. Changes in reforms not only depends on outside factors but also domestic factors, which above all escape the accountability part of reforms so that whenever something goes wrong, it becomes every body's responsibility and virtually no body's responsibility. In the classic example of failure of Structural Adjustment (SA) reforms in most of the countries, at evaluation it was blame shift game. World Bank can shift it to IMF, the IMF in turn to World Bank and in third scenario it may be recipient country's fault that it failed. Finally, the recipient government can just say that it was the fault of those who were politically in power.
There can be little disagreement that we need economic reform but not flawed from the perspective that it might improve economic fundamentals but increase poverty through "off-the-shelf austerity measures. …