at the settlement of Mothparja, which is located along the historic Indus River. Mariam Bibi is accompanied by her five children as she sleeps on her charpoy in a homemade tent. It had been 8 months since the devastating deluge of 2022 upended their life. Even necessities like two square meals, new clothes, clean water, and a classroom have been upgraded to luxury as a return to normal life remains distant. She thinks about murdering herself and her kids in the midst of this sea of hopelessness. Mariam isn’t by herself. In Pakistan, there are 30 million flood victims who are in extreme poverty, including her.
Asif Zaman works as a designer for an advertising business in Karachi, Pakistan’s largest city, which is about 400 kilometres away. Despite possessing a bachelor’s degree, Asif only earns $4 per day. His costs for groceries, energy, petrol, school fees and clothing have skyrocketed over the past year despite record inflation and a 60% decline in the value of the rupee. Asif thinks about pulling his kid out of school to make finances meet while he fills up his motorbike. Asif is not the only one. In Pakistan’s cities, there are 45 million lower middle-class individuals like him who lack access to any social safety net.
The numerous Mariams and Asifs are the ones we should be most concerned about in the midst of Pakistan’s worst economic crisis, which has driven the nation to the verge of default. Nevertheless, Pakistan’s government and the International Monetary Fund (IMF) are failing precisely these people. The repercussions of this neglect might be disastrous—for Pakistan and its neighbors—in the fifth-largest country in the world, which is home to 230 million people who live close together, are strongly polarised, and are heavily armed.
But, at the end of 2021, it was time to resume the IMF programme that had been put on hold due to the epidemic because a sizable amount of external debt came due during the following few years. That was widely acknowledged as the only way to safety.
Unfortunately, this is the point at which Pakistan’s policymakers betrayed their citizens. A populist energy subsidy caused a fiscal gap of 1.5% of GDP amid political unrest. More recently, import restrictions were used to artificially support the rupee, which brought down several sectors. Meanwhile, there was no attempt to cut back on energy or unnecessary government spending. Due to highly irresponsible remarks made by influential leaders, foreign creditors who had sold Pakistani assets made no move to recover them.Promises made to the IMF were breached, and they were the target of outrageous charges. As a result, the currency has collapsed and our foreign exchange reserves are currently on the verge of being exhausted.
The IMF has been amused while Pakistan has been committing hara-kiri in the meantime. The important IMF programme has essentially remained in limbo throughout this time. This is primarily the fault of our policymakers. The Fund now finally appears ready to assist in saving us by resurrecting the programme. However, the Fund is also involved in several serious errors.
The key budgetary policy the Fund has agreed with the government is a rise in the sales tax, which is a very regressive measure, despite declarations that the poor will be protected and the weight of adjustment will be passed on to the rich. The idea of taxing the retail industry, which employs the majority of Pakistan’s nouveau riche, agriculture (which is dominated by wealthy landlords), or property (an unproductive asset where illegal income is hidden) is completely absent. This is a historic chance lost to increase the revenue base in a fair manner.
Second, the BISP, a cash transfer programme that provides assistance to 9 million households who make less than 70 cents a day, is the only true safeguard available to the poor. Each day, they will also get an additional 30 cents. This protection is merely cosmetic in a nation where 40% of the populace—90 million people—earn less than the $3.65 per day middle-income poverty line set by the World Bank and where inflation is at a 50-year high of 30%.
Finally, the government and IMF are making the false claim that Pakistan’s public debt can be serviced. Pakistan has just $4 billion in foreign exchange reserves and $35 billion in external financing needs over the next five years. The government will be required to pay interest on its debt to locals and foreigners throughout this time at a rate of 5% of GDP annually. Just 10% of GDP is collected in taxes overall. Pakistan is the most in need of debt relief of any nation. It will be disastrous if you deny this. It will inflict intolerable austerity on a people that is already demoralised by a severe crisis in the cost of living and governmental dysfunction. It may lead to a significant social uprising.
Fourth, the IMF is struggling to fulfil its historical function as a lender of last resort. Pakistan has requested us to collect debts on our own, rather than assisting it as it had in the past. Despite the IMF having approved our plans, even the World Bank is no longer automatically rushing to our aid, let alone new creditors like China and Middle Eastern states. For developing nations like Pakistan, this loss of the IMF’s catalytic role leaves a significant gap in the global financial safety net.