A recent loan package of $5.3 billion to Pakistan by the International Monitory Fund will enable transitory relief to Pakistan’s new government and its limping economy. But Pakistan’s long-term economic solutions cannot be solved by frequent loans from international organizations and foreign aid from friendly nations such as the United States, Saudi Arabia and China. Economic principles are no different whether it involves a national or personal economic situation and securing loans and foreign aid is not a permanent solution in either situation. Of course, loans and foreign aid, in particular, are valuable tools to fix short term pecuniary predicaments, provided the money is managed correctly, but sustainable economic growth is the only answer to avert future financial tribulation and that should be the priority of Pakistan’s new government.
Pakistan’s chronic dependency on foreign aid and international organizations like the IMF and the World Bank is well documented. The United States has been providing foreign aid to Pakistan since the early 1950s and the IMF and various Pakistani governments have worked out and then abandoned a number of financial arrangements in the last 30 years. There is absolutely nothing wrong in seeking IMF assistance and accepting foreign aid from friendly countries in order to strengthen a nation’s economy and relax short-term fiscal vexation. There are several examples confirming that a number of countries took advantage of IMF assistance to revitalize their economy and managed to attain robust economic growth.
India is the prime example of successfully managing an IMF loan which helped to improve economic growth for many years. In the 1990s, the IMF and the World Bank provided financial assistance to Pakistan and recommended a number of economic reforms to stabilize Pakistan’s economy and draw foreign direct investment, but Pakistan failed to achieve these intended goals. Positive results could have been achieved by properly managing and investing foreign aid to improve infrastructure, agricultural production, education and the healthcare system. Obviously, investments in these sectors create thousands of new jobs and low unemployment is proven to stimulate any economy regardless of the size and situation of a country. More people at work means higher consumer spending, increased demand in goods and services and improved tax revenue, in all different forms, for the government. Successive Pakistani governments were unable to dedicate the full amount of foreign aid and loans to these programs because of widespread corruption.
As usual, all monetary support, especially any IMF loans, come with a bundle of carefully crafted terms and conditions, termed loan conditionality, designed to achieve projected objectives and liberalization, privatizations, and the creation of a business friendly environment, to encourage foreign direct investments. These are some of the IMF’s basic and standard conditions for loans to most developing countries. Despite following IMF recommendations, Pakistan failed to attract foreign direct investment which is necessary to keep the economy growing once the programs intended to improve employment begin to produce some economic improvements. Political instability is the prime reason for Pakistan’s failure to draw foreign direct investment. Safety and security as well as human assets were other concerns that held back multinational corporations from investing in Pakistan.
Implementing public welfare programs and attracting foreign direct investment seems like an easy task, but it requires proper planning, excellent governance and a stable political system to successfully execute these programs. After all these years and billions of dollars of financial help, Pakistan is still struggling with high unemployment, poverty, poor education and a healthcare system. The leading reason for Pakistan’s inability to realize economic progress are the decades of weak and corrupt governments in Islamabad who have failed to manage and invest foreign aid and address issues concerning the safety and security of its citizens, let alone the safety and security of foreign citizens.
A government in constant need of money is always at risk of being manipulated by powerful groups within the country for their own benefits and by the international community for their geopolitical strategies. To achieve economic growth and financial independence, Pakistan needs a corruption free democratic government which is strong enough to stop violence, provide safety and security to everyone and disciplines the “terrible twins” of Pakistan, its military and ISI, who are mostly responsible for creating disturbance within the country, in the neighborhood and around the world.
The people of Pakistan are hoping that newly elected Prime Minister Nawaz Sharif will be able to install an effective and credible government that will reduce violence and corruption, manage loans and foreign aid better than its predecessors and begin a new era of political and financial stability in Pakistan in order to confront the forces who want to see a weak government in Islamabad.