Since 1958, Pakistan and the IMF made 22 agreements including the most recent one signed by the PTI government. Earlier, PPP and PML-N governments had signed agreements for loan and bailout packages during their tenures, accepting harsh conditions; yet their leaders criticize the PTI government for entering into an agreement with the IMF.In 2008, PPP government had signed $11.3 billion Stand-by Arrangement (SBA) with IMF and got disbursements of about $7.6 billion. It failed to get the remaining $3.7 billion due to lapses in performance criteria, leading to suspension of the program in May 2010, which culminated in an unsuccessful ending on September 30, 2011. In September 2013, PML-N government had approached the IMF for bailout, and latter’s Executive Board approved a $6.6 billion loan for Pakistan to support its program to stabilize the economy and boost growth while expanding its social safety net to protect the poor.
The 36-month program under the IMF’s Extended Fund Facility was aimed at bringing down inflation and reducing the fiscal deficit to more sustainable levels. The program also included measures to help achieve higher and more inclusive growth, in particular through addressing bottlenecks in the energy sector. The then finance minister Ishaq Dar had stated: “It will put the country on the path of sustainable growth and was going to open lending avenues with other international lenders”. However, his hopes dampened when IMF decided to disburse only $547 million as first tranche, much lower than what Ishaq Dar was expecting. For the release of the remaining amount, tough conditions were imposed and accepted. These were never debated in Parliament as was the case in 2008 under PPP government; yet both PPP and PMLN are critical of PTI Government for availing IMF’s bailout without any debate in Parliament.
It has to be mentioned that there are 189 members of the International Monetary Fund (IMF), but it is run by seven of them – the US, the UK, Japan, Germany, France, Canada and Italy. The group sustains its control by insisting that each dollar buys a vote. The bigger a country’s financial quota, the more say it has in the running of the IMF. This means that it is run by countries that are least affected by its policies. The question, however, is why a resourceful country like Pakistan has to be in the debt trap of the IMF. The answer is that due to the flawed policies of the inept rulers Pakistan has come to the present pass. It has been spending more than the revenue it collects, and importing more than it exports. To meet fiscal deficit it relies upon banks, and to meet current account deficit it approaches the IMF.
Of course, IMF’s conditionalities such as devaluation of currency and increase in the rates of utilities produce ‘the multiplier effect’, leading to cost-push inflation making it impossible for the local producers to compete in the world market. In the domestic market, people have to pay more for everything, which erodes the incomes of salaried class and fixed income groups, pushing more and more people below the poverty line. But this crisis is of our own making, as apart from rampant corruption, many members of business community indulge in evasion of customs duties and taxes.
A Pakistan Business Council (PBC) research had reported about the variances and under-invoicing of imports between Pakistan and other trading partners including China, UAE and other countries. According to a recent report, China exported goods worth $12bn whereas according to SBP the figure of imports was $6bn, means the difference was sent through hundi.
It is important to realize that the IMF and World Bank are tools for powerful entities in society and big powers. In fact, the IMF is driven by many factors, including the dictates of its larger shareholders – big powers – to promote their own security and economic goals, and its own financial interests
It is important to realize that the IMF and World Bank are tools for powerful entities in society and big powers. In fact, the IMF is driven by many factors, including the dictates of its larger shareholders – big powers – to promote their own security and economic goals, and its own financial interests. Instead of being helpful in restoring long run viability of the economy, the IMF has been responsible for worsening the situation. Reportedly, the US and the West had been persuading the IMF in the past to stop providing loans to Pakistan or come out with stringent conditionalities to force Pakistan to stop working on nuclear and missile programs. Efforts have been made from time to time in the past but despite all incentives and measures such as price mechanism adjustments, subsidies, rebates, exchange rate adjustments and devaluation, Pakistan has not been able to boost its exports.
Former prime minister Shaukat Aziz had been bragging about more than $15 billion foreign exchange reserves and vowed that “Pakistan has broken the begging bowl and now it would not ask loans from the IMF; hence there would be no dictation from the IMF”.
But within six months after the end of his tenure the worsening economic situation and dwindling foreign exchange reserves knocked the bottom of his pretence and his flawed policies. Even otherwise, till the time there are unpaid or rescheduled loans, the IMF will remain in the picture so far as conditionalities are concerned. In the past the recipe of the IMF vis-à-vis downsizing, privatization and increase in the prices of utilities and increase in indirect taxes like GST to balance the budget had proved disastrous, as the people had to bear the additional burden of indirect tax like general sales tax, which is passed on to the consumers.
The writer is a freelance columnist