Beyond stabilisation.

THE debate in macroeconomic and policy circles is currently stuck on trying to decide whether or not Pakistan should go to the International Monetary Fund for another programme. But this is generally, a useless debate. The real issue is why we need to go to the IMF so regularly. Why do we get into the problem of unmanageable foreign currency and fiscal deficits so often that we have to seek the IMF's help every three to five years or so?

The IMF was created to help countries in crises. So, going to the IMF should not be an issue, given the crisis situation we are in. But, with or without the IMF, once we have stabilised the macroeconomic situation and managed to acquire a certain degree of control over the trade and fiscal deficits, then what? The control is going to come at a heavy price. Pakistan will have to contract aggregate demand significantly and, consequently, growth will be a lot slower over the period we are stabilising the economy. But then what? As soon as we start letting demand increase and try to get Pakistan on to the growth path, will the imbalances not resurface again and create another crisis?

We have already started implementing demand compression measures. The interest rate has been hiked a number of times, the rupee has been devalued, certain import tariffs have been raised, expenditures, especially development expenditures, have been cut, gas/electricity tariffs have been raised and additional revenue measures on the tax side have also been announced.

The economy has shown some response to these measures. We will have to wait a little to see if these measures will be enough. But, given the slow response of the economy, it seems that the current steps are not enough and we will have to implement even sharper measures to rein in the twin deficits.

The state seems to lack the will and the skill to manage structural reforms.

The IMF has been recommending some of the same policies. There might be disagreement - and this is surely an important point to negotiate - over the speed with which adjustment should take place and over how much any particular variable should be moved, but there is agreement on the overall policy direction that Pakistan should take.

Irrespective of whether we get IMF funds or not, Pakistan will have to borrow money internationally to ensure we can survive the adjustment period. The IMF's stamp of approval will allow Pakistan to secure better terms from other lenders as well. IMF money, a few billion...