WILL our government graduate from the IMF programme for good in the near future? Will it be able to extricate itself from the self-made problem of creating cycles of foreign exchange shortages and bare sufficiency (after IMF help), accompanied by fiscal profligacy as seen in its inability to contain needless expenditures and raise sufficient revenues to keep its debt at sustainable levels? For answers, we would need to contemplate our economic history, which readers can do at their leisure.
Here, let’s first look at the similarities between a drug addict and a person addicted to borrowing. A drug addict consumes substances to avoid the pain of withdrawal symptoms or to sustain the feeling of pleasure. A habitual borrower consumes goods or adopts a lifestyle his income can’t afford to sustain. In both cases, the immediate payoff (relief, pleasure, social status) is concrete but the future cost (health collapse, insolvency) remains an abstract, often discounted, idea.
In both cases, an identical ethical and economic problem emerges, which economists call a ‘moral hazard’. It is a state when someone believes he is protected from the consequences of his actions and consequently behaves more carelessly or takes bigger risks. If an addict knows that his family and friends will repeatedly get him medical treatment, the perceived cost of continued drug abuse declines. His behaviour becomes less constrained by the consequences of drug use. The risk of greater and repeated substance consumption rises. Over time, the same drug dose produces reduced effects. The addict takes more to maintain the same psychological state.
There are certain similarities between a drug addict and a person addicted to borrowing.
Similarly, a borrower who expects bailouts, debt rollovers, or forgiveness from lenders may spend money beyond sustainable limits, in the assumption that there will be future relief. In both cases, either there is no full understanding of the consequences of risky behaviour or the risks associated with this behaviour are not accepted. Any external support, though stabilising in the short run, weakens discipline. Initial borrowing solves a temporary problem or boosts consumption. Over time, the income increasingly becomes committed to debt servicing; additional money is borrowed just to maintain the same lifestyle. Debt ceases to fund growth and instead funds survival.
Denial is also a key similarity. The addict says, “I can quit anytime’; the compulsive borrower claims, ‘growth will rebound’. Both ignore warnings and personal narratives are used to postpone reality. This cognitive dimension reinforces the moral hazard and deepens over-indebtedness.
While this discussion is only with reference to individuals, it is surprising to see our governments exhibit similar behaviour (readers need only recall that the current IMF programme is our 25th). Over-borrowing and substance abuse aptly reflect our government’s high debt through the abuse of foreign exchange mostly by keeping the rupee overvalued, which primarily increases imported consumption (together with fiscal profligacy). This abuse is sometimes caused by directly selling foreign exchange to the market, and at others by not buying more from it.
How should the problem of ‘moral hazard’ be addressed? This problem does not go away completely but can be lessened by imposing ‘conditions’ on the drug addict, habitual borrower and government by the ‘rescuers’. Family and friends should warn the drug addict that they will not help if he continues with substance abuse. Compassion requires the family to help but with conditions. The family forces him into rehab but bears its costs. The addict, in return, gradually builds discipline to lessen dependence on substances, and eventually drops the habit. Of course, it isn’t that simple. Returning to sobriety depends on the addict’s recognising that he faces a long-term health problem and has to firmly adhere to strict rehab rules. The addict also must have regular therapy sessions.
Of course, the comparison with governments is hardly complete but it does provide insights, the core one being that the addict cannot forgo substance abuse unless he reforms himself. The critical difference for the government in this analogy is that it fully understands the risks associated with over-borrowing. We can give the benefit of the doubt to an addict because the effect of drugs on his nervous system may hamper his understanding of the associated risks to his health and life, but not to the government. Likewise, we can show compassion to the addict but not to the government. Hence, the ethical aspect of the moral hazard is more severe for the government than the addict.
Drug addicts need therapy; should the government also get it? It does in a way — from the IMF in six-monthly reviews, and in between whenever economic symptoms (reflected in data) start signalling deviations from discipline. Therapy in this case is talk about what is a good policy (good economic behaviour) and what is not. Therapy is ineffective in this case because the government is intelligent and already knowledgeable about good policies.
This discussion is not with reference to the current IMF programme, which is going well. It is with reference to the past and future. Our authorities (the IMF uses this term that covers all kinds of governments: democratic, hybrid, autocratic, etc) have shown considerable discipline in generating primary surpluses through raising revenues that cover more than its expenditure (other than interest payments). This, however, came about mostly through increasing taxes on existing taxpayers, without containing unnecessary expenditure. Except for PIA’s recent privatisation, there is no concrete attempt at reform. Good things have happened on the foreign exchange front, not because of reforms, but because of bounty in terms of more remittances that increased dollar reserves. Exports have stagnated and the rupee remains appreciated in real terms. Whenever the dollar build-up is in accordance with the IMF’s prescriptions, the Fund seldom objects to overvalued currency other than urging the authorities to leave the exchange rate to be truly determined in the interbank market. Our analogy with the drug addict leaves us with only one conclusion. Unless our authorities commit to implementing reforms, only they will benefit from the IMF packages, while the masses, who bear the costs of postponed reforms, will continue to suffer.
The writer is a former deputy governor of the State Bank of Pakistan.
Published in Dawn, January 31st, 2026
