Pakistan: IMF's concerns and our response

The International Monetary Fund is "monitoring" massive capital flows into Asia and has urged Asian policymakers to guard against overheating of their economies. The levels of inflows are above historical trends, skyrocketing property prices. Earlier, the Fund was worried about "three-speed recovery" in the world's largest economies. IMF's Managing Director Christine Lagarde also called it a critical moment that requires well-calibrated 'customised' responses by different economies to get back in sync with each other and strengthen global growth. Her comments were of course consistent with the reports released over the past week, showing deep concerns, especially about the continued recession in eurozone. While the concerns of Fund's Managing Director may be in order, one needs to realise that the air of crisis of last year when there was a fear that eurozone would break up under stress and the US economy would revert to a contractionary cycle by the austerity of "fiscal cliff" was now largely over. As the large economies still not have fully returned to sustained growth after the 2008 crisis, it is only natural that less developed economies would remain vulnerable due to their closer links with the developed economies and turbulence in the financial markets. It is nonetheless true that the various groups of countries are moving at different speeds and that cannot be considered as the healthy recovery that one could wish for. However, in spite of the above factors/developments, we are of the view that there is no need to strike the panic button, at least as yet. The loose monetary policy being followed in developed countries is taking the world economy into an unchartered territory. Also, it needs to be borne in mind that the rate of recovery is always uneven between various groups of countries. It is also never the same between various regions of the same country. The mood in 2012 was almost hopeless but now it should be less frustrating, if not very upbeat. Some countries would continue to face problems even if most of the other countries come out of recession and revert to pre-2008 economic activity. This is due to the difference in attitudes, resources, and policy implementation. Moreover, the severity of the endemic problems could be reduced in the short run but a complete resolution of these issues requires time and patience. Pakistan is a classical case in this context. It should be pleasing that the 2008 financial crisis is largely over and the country was not much affected by that but as everybody knows, the relief provided by the global recovery could be small and could only have a limited impact on the economy. This is because most of Pakistan's problems are of its own making and such positive outside developments could only help but cannot provide a real forward push to the economy. Fiscal imbalances cannot be corrected from outside. Our failure to collect taxes, as well as allowing PSEs to continue with mounting losses and maintaining populist stand on subsidies lie at the root of the problem. Policies to reform the economies may not be exactly the same but the goals like sustained growth and macroeconomic stability cannot be different and are definitely worth pursuing.