Policy issues in EFF programme — I

Business Recorder

a day ago

Pakistan's Extended Fund Facility (EFF) programme with International Monetary Fund (IMF), which as per one of its benchmarks also forms the basis of the upcoming federal budget, suffers serious flaws in terms of prescribed policy, and objectives.
Together with the other recently negotiated Resilience and Sustainability Facility (RSF) programme, the EFF programme targets putting the country on a sustainable macroeconomic, economic growth, and green economy-based resilience against climate change and 'Pandemicene' phenomenon path.
The problem is that for achieving these three objectives, it prescribes neoliberal and over-board monetary and fiscal austerity policies, which during the last four decades or so, have not only proved to be counter-productive to achieving the goals that have been stated above, but have also increased income inequality, and poverty, and diminished political voice, and overall weakened the quality of democracy.
Moreover, as indicated, the upcoming federal budget, and provincial economic policies and budgets under the overall 'National Fiscal Pact' all need to continue to get aligned with these policy prescriptions under the EFF programme.
While analysing the recently released 'IMF Country Report No. 25/109' there are a number of policy prescriptions that need to be pointed out to highlight the alignment of policies with neoliberal, over-board austerity framework, and how they are counter-productive to achieving the much-needed stated goals, especially in a world strongly punctuated by polycrisis, in particular the fast-unfolding climate change crisis, and the likely, and related 'Pandemicene' phenomenon.
To start with, serious ongoing geopolitical tensions in the Middle East, Ukraine-Russia conflict, and heightened tensions between two nuclear-armed countries Pakistan and India, and the fast-increasing global warming, and likely risks of another pandemic are significant, posing significant downward risks to the EFF programme.
For instance, with regard to global warming, according to the recently released 'WMO [World Meteorological Organization] global annual to decadal climate update 2025-2029' report, 'It is likely (86% chance) that global mean near-surface temperature will exceed 1.5°C above the 1850-1900 average levels for at least one year between 2025 and 2029. It is also likely (70% chance) that the 2025-2029 five-year mean will exceed 1.5°C above the 1850-1900 average.'
Moreover, while global warming at the back of fast-unfolding climate change crisis continues to increase, with it the probability of the related 'Pandemicene' phenomenon likely also continues to rise. It is important to note that not much has improved in terms of preparedness mainly in terms of public health, making resilient aggregate supply chains, and making meaningfully supportive patent law/intellectual property rights (IPRs) under the current World Trade Organization (WTO) regime for better preparing against these existential threats.
A significant cause of all of this continues to be neoliberal, and over-board austerity policies, which is shocking, given the lack of preparedness this policy had caused, as revealed by Covid-19 pandemic, and the global aggregate supply shock that struck in the wake of the pandemic.
An August 15, 2024 'Foreign Affairs' magazine published article 'The world is not ready for the next pandemic' indicated – and the findings of which unfortunately still hold strong after almost a year since its publication, as not much has changed in terms of policy response where, for instance, no significant effort has been made by IMF in terms of its policy prescriptions in its programmes with recipient countries, including Pakistan –as follows: 'Less than five years after the outbreak of COVID-19, the world remains vulnerable to another pandemic.
Over the past five months, a mutated strain of the H5N1 influenza virus detected in dairy cattle poses a potential risk for a pandemic-causing virus. Yet governments and international organizations have done far too little to prepare for such a scenario, despite the lessons they should have learned from the global battle with Covid-19.'
Two more economic trends globally need to be understood to bring proper context to whatever little semblance of most probably short-term natured macroeconomic stability achieved domestically under the EFF programme, and that is, firstly, the negative impact of tariffs, geopolitical tensions, and climate change crisis on one hand, and the over-board monetary-, and fiscal austerity policies coming through their respective transmission pathways, and resulting in lower aggregate demand, reduced aggregate supply correspondingly, and overall low growth globally.
For instance, the June 2025 report titled 'OECD [Organization of Economic Co-operation and Development] Economic Outlook: tackling uncertainty, reviving growth' highlighted the likely negative impact of tariffs imposed by US on global economic growth as 'The global outlook is becoming increasingly challenging. Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.
Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices. Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% this year and in 2026…There are substantial risks to these projections, with the scale and duration of the expected downturn remaining highly uncertain.'
Secondly, the windfall gains from a very low price of oil internationally – crude oil falling from the usual highs traditionally of around $100 per barrel to around $60 per barrel – in terms of producing positive impacts for balance of payments, in particular import payments, and imported-, and in turn, cost-push inflation all receiving a dent. A June 5, Bloomberg published article 'Oil stalls as traders weigh Saudi output push, summer demand' pointed out in this regard: 'Oil remained stuck near $65 a barrel as signs Saudi Arabia is seeking another big production increase at next month's OPEC+ meeting offset the outlook for summer demand.'
Hence, macroeconomic stability achieved under the EFF programme has significant attribution from low oil prices, which is at best a transitory influence because it does not suit the interests of oil producers beyond the short-term like reportedly punishing certain members of OPEC+.
A May 31, Bloomberg published article 'OPEC+ agrees on third oil supply surge despite Russia's qualms' pointed out in this regard: 'OPEC+ agreed to surge oil output for the third month in a row despite reservations from key member Russia, doubling down on a historic policy shift that has sent crude prices sinking.…Officials say the supply hikes reflect Saudi Arabia's desire to punish over-producing members like Kazakhstan and Iraq, recoup market share lost to US shale drillers and other rivals, and satisfy President Donald Trump's desire for cheaper oil. …Oil briefly crashed to a four-year low under $60 a barrel in April after the Organization of the Petroleum Exporting Countries and its allies first announced that they would bolster output by triple the scheduled amount. …While Brent futures have since recovered to trade near $64 a barrel, the International Monetary Fund estimates the Saudis need prices above $90 to cover the lavish spending plans of Crown Prince Mohammed bin Salman. The kingdom is contending with a soaring budget deficit, and has been forced to cut investment on flagship projects such as the futuristic city, Neom.'
Sustained macroeconomic stability and economic growth on the contrary require strong non-neoliberal, non-austerity based institutional, organizational, and market reforms. Structural reforms being suggested – in line with the traditional neoliberal, and over-board austerity-based outlook of the IMF – like seeing government as mainly reacting to market failures, and regulating loosely and, in turn, the direction of reforms pushing towards reducing government's footprint, rather than rationalizing its role, which could mean overall increasing its footprint if need be.
While there are arguments on both sides of greater role of private sector in running the economy, that view has continued to sideline, especially in the wake of the misgivings that were exposed by the Global Financial Crisis 2007/08, and then in the wake of the Covid pandemic in the shape of lack of resilience created over decades under the neoliberal assault, along with little institutional provisions being placed under trade rules; for instance, to push for provision of vaccines as a global public good. Quite shockingly, such lessons have not been reflected through EFF programme thinking that continues to be the flagbearer of neoliberal thinking.
Also, it is no hidden fact that the success of the Scandinavian countries or China for instance has been at the back of a strong state sector protecting the rights of its demos from the profit-motive excesses of the private sector by public sector playing a significant role in market creation, through adopting counter-cyclical policy framework, and in pushing towards greater productive and allocative efficiencies.
Yet, without making anywhere near similar effort by the public sector, both in terms of improved institutional capacity, and providing needed levels of investment, there is a strong emphasis under the EFF programme to push for greater privatization, whereby the demos will be left virtually at the whims of private sector, given lack of capacity of the government to regulate private sector, at the back of years of under capacitation through lack of investment in education in general, and by following an ever-increasing practice of outsourcing more technical aspects of service delivery.
Hence, this begs the question as to how can a government that has not properly run a certain affair like railways, or steel mills, has the capacity, and knowledge to regulate the private sector intoboth efficiently running these affairs, and also not jeopardize public welfare aspects by over-emphasizing profit interests?
—To be continued
Copyright Business Recorder, 2025