New Delhi, Feb 2 (NationPress) The government of Pakistan has developed an addictive reliance on IMF loans, resembling the behavior of a drug addict, and is struggling to free itself from the self-inflicted cycle of foreign exchange shortages and minimal sufficiency, as detailed in a recent report.

This situation is aggravated by fiscal irresponsibility, evidenced by the government's failure to curb unnecessary spending and generate adequate revenues to maintain sustainable debt levels, according to an article authored by Riaz Riazuddin, a former Deputy Governor of the State Bank of Pakistan.

“There are notable parallels between a drug addict and an individual dependent on borrowing,” the piece in Pakistan’s Dawn newspaper observes.

A borrower anticipates bailouts, debt rollovers, or forgiveness from lenders, often exceeding spending limits, under the assumption of future relief. In both instances, there is either a lack of full comprehension regarding the repercussions of risky actions or a failure to acknowledge the associated risks.

While external assistance may provide short-term stability, it diminishes fiscal discipline. Initial borrowing addresses a temporary issue or elevates consumption. Over time, income becomes increasingly allocated to debt servicing; additional borrowing is undertaken merely to sustain the same lifestyle. The article laments that debt transitions from facilitating growth to ensuring mere survival.

Denial also emerges as a significant similarity. The addict claims, “I can quit anytime,” while the compulsive borrower insists, “growth will rebound.” Both parties disregard warnings, using personal narratives to defer reality. This cognitive aspect reinforces moral hazard and exacerbates over-indebtedness, the article highlights.

It is astonishing to witness the Pakistan government display comparable tendencies during its current IMF program, which marks the 25th instance of borrowing. The issues of over-borrowing and substance misuse aptly illustrate “the government’s excessive debt through the misuse of foreign exchange, primarily by maintaining an overvalued rupee that boosts imported consumption (alongside fiscal irresponsibility). This misuse sometimes results from directly selling foreign exchange to the market and at other times from not procuring more from it,” the article further states.

“Just as drug addicts require therapy, should the government also seek it? In a sense, it does — from the IMF during six-monthly reviews and whenever economic indicators signal deviations from discipline. This therapy involves discussions on what constitutes sound policy (good economic behavior) and what does not. However, this therapy proves ineffective as the government is well-informed about sound policies,” the article laments.

It also emphasizes that positive developments in foreign exchange have occurred not due to reforms but due to an influx of remittances that have bolstered dollar reserves. Exports remain stagnant, and the rupee continues to appreciate in real terms.

Whenever the dollar accumulation aligns with the IMF’s guidelines, the Fund rarely objects to an overvalued currency, other than urging the authorities to allow the exchange rate to be genuinely determined in the interbank market.

Unless the authorities commit to enacting reforms, only they will reap the benefits from IMF packages, while the general populace, who bear the costs of delayed reforms, will continue to endure hardship, the article concludes.