Daily Times

The bond between Pakistan and the IMF dates back to 1958, which is the first time Pakistan took a loan. This bond deepened in 1988 when the IMF poured $516 million into Pakistan. Over the years, Pakistan has approached the IMF 12 times in total, compared to only three times for Bangladesh and Nepal, twice for Sri Lanka and once for India.We it seems have bad habit, and now the new PTI government finds itself contemplating going to the authority once again.

While the IMF apparently stands for “fostering global monetary cooperation, securing financial stability, facilitating international trade, promoting high employment and sustainable economic growth, and reducing poverty around the world”, in practice their involvement leads to different results.

In 1988, Pakistan signed the Structural Adjustment Facility program (SAF) and borrowed $586 million as a kind of soft loan with stringent adjustments. Yet the program failed to attain its objectives. Another Adjustment Facility loan was negotiated under SAF in 1991, with the objectives of the program the same as they were before, aimed at bringing down public expenses by lifting subsidies, currency devaluation and reducing the budget deficit. In 1994 another facility was signed, which was even more stringent, with the focus on trade reforms including the rationalization of tariffs, elimination of multiple exchange rates, full convertibility of the Rupee, an extension of general sales tax and the imposition of excise tax on utilities. In 2000, after the military takeover, Pakistan again turned to the IMF, and agreed on the Stand-By Arrangement (SBA) facility, that led to a degree of economic upturn. During the period between 1988 and 2000, Pakistan signed nine different agreements with the IMF, yet none of the programs accomplished their goals, and the situation took a turn for the worse in 2008, due to certain domestic and external conditions. As a result, Pakistan embarked on a stabilization program over the next years but these weren’t successful either, forcing us to turn to the IMF once again for a $6.6 billion loan in 2013.

Even after 12 IMF loans, Pakistan’s economic situation has not improved, with rising unemployment, 40% of the population is living under the poverty line and less than 0.2% share in global trade. The trade deficit is $37.7 billion, with imports stagnating at $60.9 billion, and these figures raise questions over the supposed effectiveness of IMF assistance to the country

Even after 12 IMF loans, Pakistan’s economic situation has not improved, with rising unemployment, 40% of the population is living under the poverty line and less than 0.2% share in global trade. The trade deficit is $37.7 billion, with imports stagnating at $60.9 billion, and these figures raise questions over the supposed effectiveness of IMF assistance to the country. And it isn’t only Pakistan that has suffered due to the IMF; many countries in South America, Africa, and Europe have suffered the same fate.

In 1985, the IMF came to Tanzania in a bid to improve their economic conditions, and the result was disastrous. A country that once imparted free education, started charging students by 2000, and their enrolment fell from 80% to 66%.

The health care system deteriorated as well, and AIDS rates swelled to 8%, while per capita income between 1985 and 2000 fell from $309 to $210. Similarly, Ghana once had a thriving rice industry and used to export it around the world. Yet the IMF convinced their government to cut subsidies for farmers, and today the result is that Ghana is now forced to import rice from the US, while their rice farmers are facing poverty and lack of opportunities.

In 1998, the IMF granted a loan of $22 billion to Russia, but even such an amount had no effect on their economic woes. Only six years ago they had also taken a loan of $18 billion, yet none of it helped Russia’s economy recover. While it is true that their government did not implement many of the reforms the IMF asked of them, the latter still continued to provide said loans, and this cycle added to Russia’s debt and economic problems.

The policies of the IMF, particularly in developing nations, have only served to make the situation worse. They diminish the control of the central bank, which gives a liberal hand to corrupt elements to transfer capital out of the nation, fostering economic instability. They also insist on currency devaluation, and every country has to devalue its money with a purpose to make exports cheaper, yet this only leads to budget shortfalls.

One major cause for IMF’s malfunctioning is that the USA dominates the former’s policies, due to its larger share in funding for the institution, which stands at almost 16%. Jaded by the hegemony of the USA, BRICS countries (Brazil, Russia, India, China, and South Africa) have contemplated establishing an alternate bank to the IMF, leading to the foundation of the New Development Bank.

While the IMF does cause problems, the countries that keep on turning to them for economic stability are also to blame. They should rather look at alternate solutions instead, and Pakistan right now needs to the same.

The new government needs to realise that after seeking their help 12 times nothing has changed, so how can they expect anything to chance in the future as well. For the Pakistan economy to stabilise, other strategies need to be contemplated instead.

The writer is a freelance columnist. He Tweets at @iamusmanghani

Published in Daily Times, September 23^rd 2018.