Introduction

Pakistan has seen its best days and worst days during its nearly 7 decades of inception. During the days of crises, many institutions and countries helped it stand up again; one of the rescuers was the International Monetary Policy (IMF). But the main question arises that was it a blessing or just another crisis in disguise? If IMF helped Pakistan, so what did they get in return? This report answers, further, the following questions:

Was/ is there any other source of help? If yes, why didn’t Pakistan use it? What are the implications of taking loan from IMF on Pakistan’s economic indicators? Did Pakistan regain its health or turned out to be worse? If it turned out worse, so what should Pakistan do to climb out of such a dark pit?

International Monetary Policy (IMF):

The International Monetary Fund (IMF) is an international organization that was initiated in 1944 at the Bretton Woods Conference and formally created in 1945 by 29 member countries. The IMF's main objective was to assist in the reconstruction of the world's international payment system. Countries contribute funds to a pool through a quota system from which countries with payment imbalances temporarily can borrow money and other resources. The IMF does not issue funds for individual projects but focuses on diminishing the balance of payment deficit and provides facts, statistics and information on how to maintain an healthy balance of payment. The governance of IMF is illustrated as below:

Pakistan and IMF Relationship

Pakistan became a member of the IMF in 1950. The first time the Government of Pakistan opted for a loan from the IMF was in 1958. Pakistan received its second and third SBAs in 1965 and 1968, during Field Marshal

Ayub Khan’s era. Four more SBAs worth USD 330 Million were granted to Pakistan during General Yahya Khan’s regime who replaced Ayub Khan.

A total of 12 programs have been received by Pakistan. Some of them are as under:

Standby Arrangement (SBA) Structural Adjustment Programs (SAP) Poverty Reduction and Growth Facility (PRGF) Extended Fund Facility (EFF) Extended SAP Compensatory Contingency Finance Facility (CCFF)

The IMF has agreed to lend Pakistan an amount of USD 5.3 Billion (originally asked for USD 7.2 Billion) under the Extended Fund Facility (EFF) over the next three years to boost Pakistan’s FX reserves and to help the economy.

An IMF loan will likely involve Pakistan in a long process of committing to reforms, broaden its narrow tax base and slash subsidies in particular. The 3 year loan will be available with a 3 percent floating interest rate and will be considered by the IMF board in early September.

According to desired situation, huge amount of loans from IMF should have stabilized the Pakistan economy and balance of payment deficit by now but the condition of Pakistan economy and exchange rates are not even close of getting stabilized.

Positive Outcomes of IMF in Pakistan

The government paid off the circular debt of Rs.500 billion which was the cause of power outages. China has committed to provide US$ 6.5 billion for the Energy Park at Gaddani project. A program of targeted subsidies has been introduced to lower the burden on low income groups. Youth Loan Schemes and package of incentives for businessmen are initiated to revive domestic

investment. GDP recorded a growth rate of 5.00% during the last quarter as compared to 2.9% during the

corresponding period last year.

Negative Outcome of IMF in Pakistan

Pakistan’s gross debt to total national output ratio will remain at 63.4%. The debt projections exclude the $2 billion that Pakistan raised from international markets at exorbitant

prices last week. Government will also not be in a position to bring down the country’s total debt for at least two more

years according to latest figures released by the International Monetary Fund (IMF). Pakistan failed to increase revenues and its tax collection fell short of the first nine months’ target by

over Rs200 billion. 64% of the debt is due for redemption within the next 12 months, entailing high rollover and refinancing

needs.

Negative Impacts on IMF

IMF has been criticized of being immensely manipulated by the United States as it is their major donor.

IMF has been accused of supporting military dictatorship. Increase in the number of conditionality. In 1988 the number of conditions laid out to Pakistan was 4

and by year 2000 they had become 35. Overoptimistic projections. It has been blamed to create situations where countries have ended up in a vicious debt cycle “more loan

more interest, more interest more loan.” Conditionality undermines domestic political institutions. Over-imposing.