Daily Times

Our policy irony is that despite our wilful denial of not depending on the IMF support, we are again, and again, and again trapped in this negative western capitalist trajectory support system. Very shortly after the historic failure of Bretton Woods System of Fixed Exchange Rates in August 1971, Pakistan de-linked PKR from GBP and pegged it de jure with USD at the same parity of PKR 4.7697/USD to keep its fixed exchange rate regime intact, despite its international demise. In May 1972, parity was devalued to PKR 11.0078, but re-valued again to PKR 9.9078 in February 1973. This so called parity with USD continued till December 1981. Thereafter, Pakistan adopted a system of managed floating regime since January 1982. And consequently, it became impossible for us to keep flowing the fixed regime. And our readjustment synergy resulted in causing exchange rate rising so crucially that we have reached from PKR 9.9078 in December 1981 to PKR 150.09 in May 2019.

Our historic misfortune is that in order to get rid of poverty and for accelerating the economic growth, Pakistan avails funding opportunity from the world’s largest financial institution IMF (International Monetary Fund) since decades. However, here a question arises that whether IMF financial support gives the positive growth to the economy of Pakistan or it just playing a vital role in enhancing poverty level instead of prosperity. The purpose of taking loans from the IMF is that Pakistan’s Government wants to stabilize its deteriorating economy, exchange rates and balance of payments. No doubt, IMF helps us in these type of circumstances and helps us by providing a huge amount of loans. At the very first sight, it seems a very attractive offer but only for a short-term perspective. The reality is quite different. When we get a loan from the IMF, in exchange of that, it imposes so many demands and conditions on us. This way or that way, we are bound to fulfill the demands and conditions.

This story of our misfortune is not ended yet. For the 13th time in three decades, Pakistan formally requested an IMF loan in October 2018, triggering on-going discussions between PM Khan’s government and the Fund. Pakistan’s economic challenges persist, as Islamabad battles mammoth twin deficits, deteriorating foreign currency reserves, low exports, diminishing tax revenues, a weak currency, onerous external debt payments, and soaring sovereign debt. Despite interventions to stave off a balance of payments crisis that would force Pakistan to submit to the Fund – such as currency devaluations by Pakistan’s Central Bank, a $1 billion loan from Saudi Arabia, a reported $2 billion pledge from China, and the issuance by Pakistan of $1 billion worth of bonds to its citizens living overseas – dialogue between the IMF and Pakistan seems to have been recently concluded.

The IMF provides loans for purposes appear very attractive. We must use loans properly and always have appropriate checks and balances

Apparently, the loan injected by the IMF to the economy of Pakistan helps in easing the BOP problems by stabilizing the foreign exchange reserves and settles its international import bills; trade liberalization encourages specialization; and improve living standards. Privatization of public sector enterprises played a notable improvement in resource allocation and economic efficiency as well as its also assisted to achieve macroeconomic stabilization through reduction of government budget deficit.

Cosmetically, the IMF programmes in Pakistan has also been helping for enhancing the government revenue by increasing the new tax culture, reducing the unnecessary expenditures of the government and mitigating the energy crisis by encouraging to initiate targeted income support programme. And yet conversely to the perceived fruitions, the IMF borrowing facility causes some serious economic effects such as: introduction of the central excise duty on service and agriculture sector; expenditure under the defence budget; non provision of supplementary grants to government departments reduction in expenditures on public sector development program; devaluation of Pak Rupee and freezing of non-development and ending subsidy on gas and electricity which adding more suffering of a lay man; increase in mark-up rate of banks and on inter-bank transitions; uniformity in the inter-bank and open market dollar exchange rate; stoppage of government financial intervention in stock market; decline in GDP growth rate and other economic indicators right after infusion of IMF funds in the economy; while policy rate include increased costs for the banks, increase in unemployment, and increase in poverty rate.

“Pakistan is facing a challenging economic environment, with lacklustre growth, elevated inflation, high indebtedness, and a weak external position,” said Ernesto Ramirez Rigo, the head of the IMF’s mission to Pakistan, said in the statement. “This reflects the legacy of uneven and pro-cyclical economic policies in recent years aiming to boost growth, but at the expense of rising vulnerabilities and lingering structural and institutional weaknesses.”

The International Monetary Fund (IMF) reached a staff-level agreement on economic policies with Pakistan for a 39-month Extended Fund Arrangement (EFF) for about US$6 billion on May 12. The interplay of relationship between Pakistan and the IMF loan facility is that as a developing country or economic is not self-reliant and therefore in order to heal the immediate economic sufferings, we are bound to take loans from the IMF to stabilize our economy and exchange rates. The IMF provides loans for purposes, which appear to be attractive. We must use the loans properly and have appropriate checks and balances.

Amid international pressures and national exigencies entailed by our impending urges to revitalize our economic indicators, we are simultaneously confronted with the twin challenge to halt the flow of money laundering and to curtail the flow of terror financing respectively. Accordingly, Pakistan has been facing the challenge to adopt the eleven points recommendations imposed and stipulated upon us by the International Finance Action Task Force (FATF). As for the FATF role, while in response to mounting concern over money laundering, the Financial Action Task Force on Money Laundering (FATF) was formally established by the G-7 Summit that was held in Paris in 1989. Consequent upon recognising the threat posed to the banking system and to financial institutions, the G-7 Heads of State or Government and President of the European Commission convened the Task Force from the G-7 member States of the Industrialized Economy.

(To be continued)

The writer is an independent ‘IR’ researcher and international law analyst based in Pakistan