Growth crumbling

ADB and IMF both bearish on Pakistani growth

The Asian Development Bank and the IMF have both lowered their estimates of GDP growth this fiscal, respectively to 3.7 percent and 3.5 percent, indicating more jitteriness about the effects of the oil shock produced by the Middle East crisis, rather than any other economic weakness. Both estimates are significantly below the 4 percent targeted by the government. This difference should not be very bothersome, only the country is on an IMF programme, and the ADB will not engage in budgetary support loans to Pakistan unless the IMF seal of good housekeeping is there.

The basic problem is that the GDP growth determines the tax collection, especially from consumption taxes like sales taxes or excises. That tax collection will determine what kind of revenue is available to service debt. The IMF in particular, is not a growth institution, and is not concerned with whether its policies lead to economic growth or not. Both are banks, and thus are more concerned with whether the country can repay them their loans, rather than whether they are growing appropriately. Even the target set by the government was anaemic, considering the challenges faced by the government, which include the need to grow the economy enough so that it can absorb the young people arriving on the job market every year. However, if ever the economy started growing to that extent, the country would probably find itself getting out of the debt trap it is presently in. While the ADB may be ostensibly dedicated to an underdeveloped country’s growth, it is not part of its mandate to get borrowers out of the debt trap. Indeed, more than the IMF, it is dedicated to development. Yet it has been the instrument through which the debt trap has been frequently sprung, and its project loans have been made by those of the World Bank, with the intention that they be embezzled, so that the embezzler may obey the political wishes of the USA.

The government must remember that the IMF and ADB have both got to offer austerity programmes, and both actually frown upon measures which boost growth. (This is why the ADB is giving a high inflation figure.) While pump priming does not work, not even politically, because of runaway inflation, the present IMF conditionalities actually suppress natural growth. The government must realize that such suppression of natural growth is as harmful as trying to create growth where there is none.