Alternative to the Imf: And Other out of the Box Solutions

Copyright © 2022 by Shahida Wizarat.

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CONTENTS

Acknowledgements

Preface

Chapter 1Failure of Another IMF Program: Making A Better Alternative Available

Chapter 2Making the SBP ‘Autonomous’

Chapter 3The Real Beneficiaries of Pakistan’s Policies

Chapter 4Use the State to Demolish the State

Chapter 5Pakistan’s Politico-Social Chaos

Chapter 6Governance and Institutional Decay

Chapter 7Aliens Rule Pakistan

Chapter 8Slaves of the Empire

Chapter 9Loot and Plunder of Pakistan’s Natural Resources

Chapter 10The New World Order and Pakistan

Chapter 11An Open Letter to the IMF

Chapter 12Vultures Let Loose on Pakistan

Chapter 13Checking the Credentials of Pakistani Leadership

Chapter 14An Agenda to Save Pakistan

Chapter 15Economic ties between Pakistan & Russia.

Chapter 16An Open Letter to Chief Justice of Pakistan

Chapter 17Should Pakistan Head East or West?

Chapter 18Waiting for a New Dawn

Chapter 19Network of National & International Muggers

Chapter 20Meeting Food Security: GM or Organic Way?

Chapter 21Making Pakistan Food Secure

Chapter 22Food Security Through GMOs?

Chapter 23Foreign Debt, GMOs, Economy & Security

Chapter 24PTI Government Performance 2018-20

Chapter 25Give Me Back My Pakistan!

Chapter 26Disconnect between Government & Strategic Interests

Chapter 27Privatization of Pakistan’s Strategic Assets

Chapter 28Energy Security for Pakistan

Chapter 29Criminal Exploitation of Balochistan

Chapter 30Education Sector Overhaul in Pakistan

Chapter 31A Sustainable Development Strategy for Pakistan

Chapter 32An Open Letter to Prime Minister Imran Khan

Chapter 33An Open Letter to the Chief Justice of Pakistan

Chapter 34Reconciling the Trade-off between Strategic & Economic Interests

Chapter 35Challenges Emanating from Present Economic Situation

Chapter 36Foreign Economic Interests & Pakistani Media

Chapter 37Real Change or mere Rhetoric?

Chapter 38Pakistan’s Posture at the FATF

Chapter 39Why Kashmir Does Not Interest the Rich & the Powerful?

Chapter 40Resolution of the Jammu & Kashmir Conflict: Way Forward

Chapter 41Economic Potential & Challenges Facing the SCO Region

Chapter 42Conflict in South Asia

Chapter 43Islamic Emirate of Afghanistan

Chapter 44Afghanistan and Beyond

Chapter 45Why US, UK & India Can’t Reconcile to their Afghan Debacle

Chapter 46Asia - The Next Economic Giant

Chapter 47Challenges on Third World Countries: Individual & Collective Response

Chapter 48Economic Integration of Six Countries

Chapter 49Growth of the Chinese Economy

Chapter 50Pakistan’s Relations with the People’s Republic of China

Chapter 51Economic Integration & Regional Cooperation: Dynamics of Pak-Russia Relations

Chapter 52Prospects of Pak-Russia Relations

Chapter 53Sanctions on the Islamic Republic of Iran: Way Forward

Chapter 54Making Peace

Chapter 55Attack on Pakistan: Real Threats or Mere Rhetoric?

Chapter 56Why the Master Mind is Not Punished?

Chapter 57Pakistan’s Economic Managers & the IMF

Chapter 58Putting the Worst Foot Forward

Chapter 59Corona Virus Pandemic

Chapter 60Voodoo Economics

Chapter 61An Ideal Caretaker Government

Chapter 62Caretaker Government

Chapter 63Way Forward for the New Government

Chapter 64Why Malala Yousafzai Was Attacked?

Chapter 65Federal Budget 2014-15

Chapter 66Comparative Analysis of the Sindh Budget 2014-15

Chapter 67Asia Pacific or ‘Indo-Pacific’?

Dedicated to the loving memory of my parents

Aisha Wizarat and Dr. Wizarat Ullah Khan

From whom I inherited great love for

Pakistan and its people

ACKNOWLEDGEMENTS

I am most grateful to Almighty Allah for instilling contentment and courage in me so that I could speak for the oppressed and the weak --------- whether they are individuals, countries or my own country Pakistan. This is possible only if the passion to speak the truth outweighs the desire for the good things in life. And I inherited this passion from my parents Dr. Wizarat Ullah Khan who served in the medical corps of the Pakistan Army and the Pakistan Air Force and my mother Mrs. Aisha Wizarat. Their lack of interest in the material things of life sometimes baffled me as a child, but I found myself falling in their footprints when I had to make my choices. I am indeed very grateful to them for passing on these attributes to me through upbringing and the genes.

I would like to acknowledge the financial support I got from the Institute of Business Management (IOBM), Karachi, Pakistan for meeting the publication costs. I would particularly like to thank President Talib Karim who is very supportive of academic activities. Thanks are also due to Mrs. Sabina Mohsin Executive Director Admin (EDA.), IOBM.

While I typed my articles myself, mostly on my IPad, but would like to acknowledge my PA Ms. Areeba Nafees Ahmed’s help with formatting the book, which she did with dedication, commitment and interest.

Thanks are also due to Dr. Kashif Imran and Dr. Muhammad Usman, both Assistant Professors at the IOBM for help with formatting issues. I would like to thank Ms. Sindhu Bhutto for data collection for chapter 15.

I am also grateful to my family for the love and support I got from them.

PREFACE

During the last thirty years neoliberal policies and economic managers have failed miserably in Pakistan, like they have in other countries that borrow from the International Financial Institutions (IFIs). And instead of resolving our crises, are pitting us deeper into the quagmire. According to Einstein insanity is doing the same thing over and over and expecting different results. The endemic failure of these policies is quite obvious now. Are the economic managers, therefore, insane as they continue to use the same policies for the last almost 30 years without success? At the outset they appear insane, but deeper introspection convinces me, that is not the case. Evidence for this presented in different chapters of the book.

Almost 75 years after independence Pakistan a country strategically placed and rich in natural resources, makes its land, air routes and resources available for free, then goes around with a begging bowl, borrowing money for budgetary support. This is what I have termed financial madness. With the majority of the population illiterate, poor and unaware of the real motives of the goverment. That is why we have not been able to reverse our Adverse Path Dependance for the last 75 years. The connivance between Pakistan’s ruling clique and the external actors is resulting in prosperity bypassing the people of Pakistan, while the fat cats are getting fatter. Different essays in the book have tried to explore how this connivance between external and internal actors is taking its toll in the economic, political, strategic and social spheres.

The debt crisis causing outflow of massive revenues to service debts and interest payments, along with the very harsh conditionalities on account of depreciation of the rupee and the hike in the lending rate have severely impacted growth of investment, output and employment, with very undesirable consequences on income distribution and poverty. As a result, we are now in the middle of a protracted crisis, which is taking its toll.

Often times I had been asked whether an alternative to the IMF exists. I not only formulated an alternative 22 years back, but have perfected it with recent data and innovative ideas. Although my alternative is superior to the IMF strategy, there is no appetite for an out of the box solution in the Government of Pakistan. There doesn’t seem to be much interest in a better strategy, as successive Pakistani governments prefer one that has IMF’s blessings and US stamp of approval!

My balance of payment crisis management discussed in Chapter 1 entails the use of barter trade and payment in local currencies, instead of foreign currencies. I have also proposed banning luxury and food products like chocolates, cheese, beverages, fruits, etc., since they are not essential imports. In spite of the seriousness of the crisis, no attempt has been made to crisis manage the balance of payments by successive Pakistani governments. Following are important deviations in my strategy from the IMF model:

a. The strategy formulated by me ensures that we tap revenue from all the sources and not just export earnings.

b. The adjustment I am proposing is not recessionary but expansionary.

c. The cost of adjustment is passed from the poor to the wealthy classes.

An important observation emerging from several chapters is that post 9/11 the world is being taken to the colonial world order which was abandoned post World War II. The leap from the present neo-colonial world order to the colonial world order of the pre-World War II era envisages dismantling the state in Third World countries through use the state to demolish the state. State power is being demolished as a result of connivance between rich western countries and partners in the Third World. These objectives are very easy to achieve in a country like Pakistan, where governments are installed by USA and U.K and corruption and dishonesty are rampant. Pakistan is a predatory state where the vast majority of office holders use their power for personal benefits and couldn’t care less about national interest, as recent events in Pakistan reveal and are discussed in Chapter 4.

The methodology entails acquiring control over the tangible and intangible elements of national power by outside forces. One factor that will have a bearing on several elements of national power are finances. Through acquiring control over finances, outside forces can control natural resources, quality of population, economic development, technology and military preparedness.

The SBP Autonomy Act is an attempt to ‘use the state to demolish the state’ through acquiring control of Pakistan’s financial sector directly by the US, as the discussion in Chapter 2 reveals. The entire geo-strategic agenda of the US can be gauged from the proposed Act. The proposed SBP Act is not making the SBP autonomous, but the Governor SBP very powerful and bringing the SBP under the control of the IMF, US and presently India as well.

If the SBP Amendment Act was about making the SBP autonomous, then the SBP board and the committees should have been strengthened. But quite the reverse has happened, as some of these bodies have been abolished and their powers passed on to the Governor. This reflected through bestowing tremendous powers, paying a fantastic package and making the Governor SBP unaccountable and authorized to receive and pass on Pakistan’s confidential information. It also reveals that public office holders who are enjoying filthy rich life styles at Pakistan’s expense have failed to protect Pakistan’s sovereignty if their appointments and extensions are made by the US and UK. This corroborates my point made several times earlier that the biggest security threat to Pakistan is its political order. The security threat emanating from the role US and UK play in appointing public office holders in Pakistan can have very devastating consequences!

The situation in other countries in Latin America, Asia, Africa, etc., is not very different from Pakistan. All these countries are experiencing debt crises, economic, political and social strife and endemic conflict. The strategy I have proposed for Pakistan is equally applicable to them. They need to take control of their resources and assert their sovereignty, if they want to deliver development to their countries.

And turning now to geo politics. In our own region the Kashmiris are fighting the region’s strategic war are being blinded, physically tortured and killed, while their beautiful land is being converted into a military base. In the National Security Policy recently announced Kashmir is being dumped for good and moves to combine Azad J&K with Occupied J&K will pave the way for an Independent Kashmir. After amending the UN resolution to add the option of an independent Kashmir, controlled by India and the US and used for conducting surveillance on China and Russia. Pakistani, Chinese, Russian and JK&L interests are converging and need to be invoked into a joint strategy, as I had proposed many years ago. I had also proposed that water issues between Pakistan and India and China and India should be sorted out trilaterally between Pakistan, China and India.

In Afghanistan the Taleban have done well to throw out a super power and its allies. But Afghanistan is being penalized by withholding her assets and recognition. Non-recognition of the Taleban Government by the Government of Pakistan is not surprising, as our decisions are made abroad. But the Chinese and Russian decisions to withhold Afghanistan’s recognition is surprising. These issues are discussed in Chapters 42-44.

Governments of Pakistan have been moving away from pursuing Pakistan’s interests. Each Pakistani government has tried to be a more loyal and willing slave to the Empire than its predecessor. An unequal relationship between Pakistan and US-UK has been intensified and expanded over the years. This subservience is manifest in the economic, political and strategic areas. That Pakistan continues to sell its precious natural resources to friends and foes for peanuts, who create wealth and bring prosperity to their peoples. While Pakistani people continue to fall deeper into poverty, illiteracy and helplessness. A state cannot remain in the colonial mode for ever. It has to become sovereign, otherwise in the present global scenario, when big powers are assaulting states, sometimes under the garb of liberalism, sometimes the so-called ‘war against terror’, weakening of the state might ultimately lead to perishing of the state!

CHAPTER 1

Failure of Another IMF Program:

Making A Better Alternative Available

I. Introduction

The present government has now completed a little less than three years in office. Evaluation of its performance is therefore in order. In this paper I will evaluate the performance of the present government for the years 2018-19 and 2019-20 using 16 performance indicators. The second objective is to suggest an alternative strategy. Following this brief introduction, I present the main contours of the IMF model which is currently in use in Pakistan in Section II. I then go on to evaluate the performance of the Government of Pakistan in terms of key economic variables under the IMF model. This is followed by Section III, where I formulate an alternative model and show that my model is superior to the IMF model. Section IV summarizes the study and presents its main conclusions.

II. IMF Strategy and Government Performance

The standard IMF policy prescription for countries faced with balance of payment crisis is to devalue the currency, which through reduction in export prices is expected to expand the demand for exports. By making imports more expensive the demand for imports is expected to be reduced. This narrative does not take low elasticity of demand and supply of our exports and imports into cognizance. With low demand and supply elasticities, the expansion in exports and the reduction in imports might not happen, as a result the trade deficit instead of declining, might actually widen. Moreover, if imports happen to be capital goods and industrial raw material, this would increase the cost of production, rendering industry non-viable, leading to closure of industries and deindustrialization as happened in the 1990s and present times as well.

But matters don’t end here. Devaluation by increasing the price of imports unleashes inflation, which the IMF tries to curtail through monetary tightening, resulting in decline in investments, output and employment. Since increase in prices is on account of increase in price of oil, industrial raw material and capital goods due to devaluation, inflation in Pakistan is not a monetary but a cost push phenomenon. But IMF treats it as a monetary phenomenon and increases the lending rate. They have been doing this since the 1990s, and I have been raising my objections ever since. This has resulted in worsening inflation on account of higher interest rates, causing increase in the cost of production, and therefore prices. The fallout on the economy and the people is horrendous, but the lenders and those drawing their salaries and pensions in foreign currencies stand to gain from devaluation.

The impact of IMF strategy on economic performance can be seen in Table I, in which sixteen performance indicators are presented for the two full years of the PTI government.

Table 1

Performance Indicators

In order to evaluate the growth performance, I am using growth rate of GDP, agriculture, large scale manufacturing and medium/small scale manufacturing sectors during the period 2018-19 and 2019-20. It is interesting to note that there is systematic decline in all the different rates of growth during this period. That is, all the growth rates declined in 2019-20 over the previous year. The agriculture sector also declined in 2018-19 but picked up in 2019-20. The rate of inflation almost doubled in the first year of the PTI government, and almost doubled again in the second year.

The debt/GDP ratio has continued to increase as is indicated by a systemic rise in both Public Debt/GDP and Government Debt/GDP, with a massive jump in the year 2019-20. Investment/GDP and Saving/GDP have continued to decline over the time period, except an upturn in the latter in 2019-20. Total Revenue/GDP has continued to decline, while Tax Revenue/GDP increased in 2019-20 over the previous year. Also, there is decline in the growth rates for Defense Expenditure/GDP in 2019-20. Notice the very sharp reduction in development expenditure over a short period of two years to a mere 12.3% from 21.7% earlier. While Education Expenditure/GDP and Health Expenditure/GDP have increased only marginally during these two years.

Next, we divide the growth rates into two categories, those that have a direct bearing on the welfare of the people of Pakistan, from those that affect Pakistan’s creditors. The first category comprises of rates of growth of GDP, agriculture, large scale manufacturing, medium and small-scale manufacturing, Investment/GDP, Revenue/GDP, Defense/GDP, Development/GDP have all declined during these two years, while the rate of increase in Education/GDP and Health/GDP is marginal. Growth of GDP, agriculture and manufacturing output would have expanded the economy and provided employment opportunities, improving quality of lives of the Pakistani people. Increase in Development/GDP would have provided infrastructure, health and education facilities to the people made possible through increase in Revenue/GDP. Moreover, increase in Defense/GDP in the present turbulent times would have enhanced our security. But all these ratios have declined, which means the economy is not expanding, with serious implications for output and employment growth. While inflation rate is increasing, the misery experienced by the lower middle classes and poor segments of the Pakistani population due to layoffs, stopping pensions, etc., is not fully reflected by the statistics. And in the present times of internal and external conflict starring us in the face, the decline in Defense Expenditure/GDP is worrying.

There are four performance indicators related with debt and its servicing. Both Public Debt/GDP and Government Debt/GDP have increased sharply and are above the 60 percent mark that Fiscal Responsibility Law restricts them to. Increase in both these indicators reveals strategic behavior aimed at increasing the dependence of the country on foreign countries and international agencies. Two performance indicators that are increasing systematically are Taxes/GDP and Debt Servicing/GDP. These indicators are of direct relevance to the creditors. The government is performing well in collecting taxes and transferring them to service debts. And this is what we have studied as a serious flaw with the IMF model. The model does not bring about structural reforms, but focuses on levying taxes to generate a surplus, which is sent out of the country for servicing debts. And government performance has corroborated this apprehension about the IMF model.

Summing up, in terms of performance indicators that have a direct bearing on the Pakistani people like increasing investment, output and employment growth, providing security in the present turbulent times, increasing health and education, reducing inflation the government has performed poorly. But in terms of increasing Pakistan’s dependence on the western bloc countries, we find increase in the Debt/GDP ratio. The government has also performed well in ensuring that Pakistan doesn’t default. It has imposed heavy taxes to ensure that a large surplus is generated to service debts, as is reflected by increase in Tax Revenues/GDP and Debt Servicing/GDP ratios.

The IMF’s external sector strategy has failed to deliver in Pakistan since the 1990s. In an earlier study I summarized the impact of IMF policies as follows:

Consequences of pursuing such policies are: One, they try to bring about a ‘recessionary adjustment’ rather than an ‘expansionary adjustment’. Second, the strategy tries to impose ‘across the board’ demand restraint rather than ‘selective’ and targeted demand restraint. Third, the cost of adjustment is borne entirely by the middle and poor segments of the society. As a result of these policies the rate of growth of the economy has been adversely affected. ………….. The decline in growth rates is having a decelerating effect on personal incomes, business profits and government revenues. - - -along with the closure of 5000 industrial units, downsizing and restructuring of State-Owned Enterprises (SOEs), decline in investments, migration of industrial units that have become non-viable due to escalation in their cost of production, are rendering millions unemployed. (Wizarat, 2000) Due to decline in the growth rate, employment rate and per capita income poverty increased to 50% in the country and was as high as 85 % in interior Sind according to the Asian Development Bank. This resulted in manifold increase in cases of car snatching, robberies, murders and two to three suicides daily reported in newspapers in the 1990s. The country was engulfed in a socio-economic-political turmoil.

Can we finance the deficit in the current account without turning to the IMF? I have formulated an alternative to the IMF’s external sector strategy. Here I am drawing heavily on my earlier papers especially Wizarat (2000 and 2001). The proposed strategy is not just an alternative, but a superior alternative, as it tries to close the current account deficit without incurring the tremendous cost entailed in the IMF strategy.

III. Alternative Strategy

I have tried to formulate an external sector strategy for Pakistan that does not entail the costs and drawbacks of the IMF strategy. My claim that this strategy is superior to the IMF strategy is on account of the following: First, with hindsight we know that devaluations for the last many years have not increased exports. And when import demand has been reduced, it has been at a very high cost to the economy in the form of deindustrialization. We are also cognizant of the adverse ramifications of devaluation on inflation, investment, output and employment. In view of the above, I am proposing ‘selective’ demand restraint rather than ‘across the board’ demand restraint. Second, I have tried to pass on the cost of adjustment to the segments of the Pakistani population that are well to do. Third, the proposed strategy tries to break the trade-off between economic adjustment and economic growth by trying to bring about an ‘expansionary adjustment’ rather than a ‘recessionary adjustment’. Fourth, while the IMF model tries to increase foreign exchange reserves by increasing exports only, the alternative strategy focuses on expanding exports, reducing imports, increasing remittances, raising payments from the use of our infrastructure, resources and services, financial assets to increase the flow of foreign exchange reserves. Following measures are being proposed in this study:

Short term Measures:

1. Charging for the Use of Pakistan’s Resources and Services

2. Selective Demand Management.

(a) Banning the import of luxury and consumer goods.

(b) Importing essential goods on barter/local currency.

Medium to Long-term measures:

1. Exploring substitutes for essential imports.

2. Exploring alternative commodities and markets for exports.

3. Repatriation of looted Pakistani assets transferred abroad.

4. Gold reserve management strategy

5. Implementation of Cartagena protocols and photo-sanitary standards.

Short term Measures

1. Charging for the Use of Pakistan’s Resources and Services

Pakistan’s highways, airports and facilities are being given for free or nominal rates. For example, NATO spent trillions of $s on the Afghan war, but used our infrastructure for free or for peanuts. When the NATO supply route was closed for a few days, small Central Asian states who gained independence after Pakistan made billions of $s for the use of their routes. In addition, our natural resources are being given to countries and companies for free or at nominal rates, as was the case prior to independence. We have been calling ourselves a sovereign country for the last almost 75 years, but are allowing the use of our infrastructure and resources for free or nominal rates as a colony would do. This practice needs to be replaced by charging market determined rates for the supply of our military and civilian infrastructure and resources, with prior knowledge and information about the total amount these will generate. All such agreements signed between Pakistan and countries for the use of our infrastructure and services, natural resources, etc., need to be ratified by different pillars of the government and the state to preempt rent seeking with personal interests subordinating national interest.

2. Selective Demand Management

(a) Banning the import of luxury and consumer goods.

Selective demand restraint rather than across the board demand restraint reduces the import demand for consumer and luxury goods, creating space for the import of essential capital goods, industrial raw material and machinery required for economic development. The strategy also passes on the cost of adjustment to wealthy classes, instead of the middle and poor classes. The cost borne by the wealthy classes will be marginal as compared with the tremendous socio-economic-political cost entailed in the IMF strategy.

Table 2 contains the import structure for Pakistan for the year 2019-20. Following the selective demand restraint strategy discussed above, we ban the import of dry fruits to the tune of $ 95.6 million, motor vehicles to the tune of $ 2.2 billion, and half of other imports which comes to about $ 900 million. Total banned imports comes to $ 3.15 billion.

The rich will not become poorer if they do not buy exotic fruits, vegetables, wearing apparel, shoes, perfumes, cars and other luxury goods temporarily. What is more, they can continue to consume these items from their previous collections. And as Griffith-Jones and Sunkel (1989) observe: The restriction of non-essential consumer imports and production would be the contribution of the privileged sectors of debtor countries --------

(b) Import of essential consumer goods on barter/local currency.

Import of essential goods like petroleum through barter trade/payment in local currency, discussed above, can also release the pressure on foreign exchange reserves. Moreover, it can bring about an ‘expansionary adjustment’, rather than a recessionary adjustment entailed in the IMF strategy. An example of an expansionary adjustment would be along the lines of an offer made several years ago by the Islamic Republic of Iran for the supply of oil to Pakistan in return for cement and sugar plants manufactured at the Heavy Mechanical Complex in Pakistan. Such a proposal would not only help save foreign exchange, but also revive economic activity in the country. Importing oil on barter will save $ 8.93 bn from the import bill. Some years back the Malaysian Government made a proposal for the export of palm oil to Pakistan on barter. Such crisis management can save another $1.65 bn. Total amount saved from importing petrol and edible oil on barter can save $ 10.05 bn.

Medium to Long Term Measures

1. Exploring Substitutes for Essential Imports

Moreover, demand for petroleum products can be reduced by switching to alternative sources like wind, solar, nuclear and hydel power.

2. Exploring Alternative Export Commodities and Markets.

We have to explore export markets for fish, textile yarn, wearing apparel and accessories, sports goods, leather and leather manufacturers and surgical instruments. Alternative markets for these could be Central Asia, the Russian Federation, Middle East, China and Japan. Moreover, Pakistan being an agricultural country has a lot of potential to export food items, fruits and vegetables to the European Union, the Russian Federation and other SCO countries. But consumers in these countries are health and nutrition conscious, and the governments are equally alive to the situation and enacting laws to ensure quality assurance of food products imported in these countries. Pakistan on the contrary, under external pressure has been promoting GM seeds, has not passed the Labelling Law to discriminate between organic, hybrid and Bt. crops. In this scenario even if Pakistan is able to produce a large exportable surplus, our exports will be shunned by the health conscious consumers abroad.¹

Table 2

Source: Pakistan Economic Survey 2019-20, Government of Pakistan,

3. Repatriation of Looted Pakistani Assets Transferred Abroad

I first presented the idea of relating debt servicing to looted Pakistani assets transferred abroad in 2000.² I had proposed that we announce a debt management strategy that allocates a certain percentage of this looted money for debt servicing, ensuring the entire amount is serviced in a short period of time. The pros of the scheme are that it meets the quid quo pro criteria i.e. it puts the burden of debt servicing on people who have benefited from this debt. Moreover, it is the only way to solicit the co-operation of countries where this money is invested. This way we tie our interests with those of the creditor countries. Expanding on my earlier suggestion made in 2000, I am now proposing that we use the proceeds of not only looted corruption money transferred abroad, but all corruption money realized from within the country and abroad. And use the proceeds not only for debt servicing, but for closing the current account deficit and building foreign exchange reserves. A task force comprising of NAB and FIA officials, economists, etc. can be constituted to work out the modalities.

4. Gold Reserve Management Strategy

During the era of the gold standard central banks maintained a major portion of their reserves in gold and a minor portion in currencies. But after the abandonment of the gold standard, central banks hold major portion of their reserves in currencies, and allocate only a certain portion to be maintained in gold. And resort to trading in gold in a crisis management situation only. However, India is successfully using gold reserve management to maintain its liquid foreign exchange reserves by buying gold quietly from private suppliers and selling it at an appropriate time to enhance its foreign exchange reserves.

5. Implementation of Cartagena Protocols and Photo-sanitary standards.

If Pakistan wants to avert free fall in the export of food and related products, it will have to ensure quality assurance of its products, it will have to adopt Cartagena Protocols on risk assessment and biodiversity and pass the Labelling Law, so that we can categorize our exports into organic, hybrid and Bt. We have to decide whether we want to keep obliging seed companies by increasing the demand for their GM seeds. This would be at the cost of losing our export markets, and ending up with a serious crisis in our current account and balance of payments.

Table 3

Source: Pakistan Economic Survey, Government of Pakistan, 2019-20

IV. Policy Recommendations and Conclusions

I have formulated an external sector strategy that is a better alternative to the IMF strategy on account of the following: First, increase in exports are expected to be brought about through quality enhancement, exploring new commodities and markets. Second, the cost of adjustment which is quite marginal is passed on to the wealthy classes, who bear a nominal cost in the short run only. Third, the proposed strategy tries to break the trade-off between economic adjustment and economic growth by trying to bring about an ‘expansionary adjustment’ rather than a ‘recessionary adjustment’. Fourth, while the IMF model tries to increase foreign exchange reserves by increasing exports only, the alternative strategy focuses on expanding exports, reducing imports, charging market rates for the use of our infrastructure, natural resources and financial assets to increase the inflow of foreign exchange.

The short-term measures proposed in this study are selective demand management, and charging market rates for the use of our infrastructure, services and resources. This will yield a very substantial amount to the external sector. I have also recommended that agreements signed between the Government of Pakistan and foreign governments and companies should be ratified by different pillars of the government, including some representation from the civil society to prevent rent seeking and corruption. The short term measures also include banning the import of luxury and consumer goods. This will save $3.15 billion from the import bill. Moreover, essential imports can be obtained on barter/paid for in local currencies, saving a staggering $10.05 billion from the import bill, resulting in total saving of $13.20 billion. The medium to long term measures include exploring substitutes for essential imports and exploring alternative commodities and markets for exports.

The successive governments have not handled the repatriation of looted Pakistani assets held abroad very effectively and requires change of strategy. I have been proposing a gold reserve management strategy since the year 2000, but successive GOPs have not paid any heed to it. Moreover, implementation of Cartagena Protocols on risk assessment and biodiversity and photo-sanitary standards will expand our export markets to the Russian Federation, Central Asian Republics and the European Union.

References:

Griffith-Jones, Stephany and Sunkel, Osvlado (1989), Debt and Development Crisis in Latin America: The End of an Illusion, Oxford, Oxford University Press.

Pakistan Economic Survey, Government of Pakistan, 2018-2019 and 2019-20.

Wizarat, Shahida, (2000), Paying Debt Through Loot, Pakistan Business Review, Vol. 2, No 3, October.

Wizarat, Shahida, (2001), An Alternative Debt Management Strategy for Pakistan, Pakistan Business Review, Vol. 3. No 1, April.

CHAPTER 2

Making the SBP ‘Autonomous’

Is the SBP Amendment Act about autonomy of the State Bank of Pakistan? If the objective of SBP Amendment Bill is to make the central bank autonomous, then its Board and committees should have been strengthened. Or