Pakistan vs International Monetary Fund
THE International Monetary Fund (IMF), is an international financial institution formed in 1944, started its work on 27 December 1945, primarily based on the ideas of Harry Dexter White and John Maynard Keynes, and formally began working from the same year with 29 members, in contrast to 190 of today in order to reconstruct the world monetary system.
Today, it largely deals with balance of payments difficulties as well as global financial crises where it provides/contributes fund to the needy nations through the quota system.
Pakistan, a country of South Asia, after its separation from India and becoming an independent/sovereign state on 14 August and became member of the IMF in the year 1950.
The nation, since its creation, has been in economic crisis due to political and socio-economic reasons as till date it has taken loan from the institution on 22 occasions with most recent being in 2019, while next one is in pipeline and may get anytime.
Although, it is an international institution of repute in providing loans to its member countries, it also keeps close eye on the overall economic health of the nations to save it from bankruptcy and other financial crises.
For the purpose it collects different data/statistics about the ongoing position of countries and warn them in regard to their upcoming crisis/imbalance in balance of payments as it is always devoted to the improvement of economy of its member nations.
Its stated objectives have been mentioned in Articles of Agreement which include promotion of international cooperation, international trade, high employment, exchange rate stability, sustainable economic growth and making resources available to members in times of financial crises.
Funding of Pak by IMF: Others alike, the newly established country Pakistan joined the International Monetary Fund (IMF) in the year 1950, and in 1958, for the first time contacted IMF for bailout.
The IMF responded favourably and lent out US$ 25,000, followed by US$ 37,500 in 1965, in the wake of Indo-Pak War while third time loan was granted due to balance of payment problem in 1968.
It is also to remember here that the big amount of IMF loan was needed by Pakistan when its eastern part, East Pakistan, now Bangladesh became free creating an unbearable economic loss for Islamabad in 1971.
On account of huge losses in war and end of a permanent source of income, Pakistan approached IMF continuously in 1972, 1973, 1974 and got a good amount of loan US$ 84,000, 75,000 and 75,000 respectively.
Now, there onwards, IMF loan became a permanent feature of Pakistan’s economy and its governments too.
It made no difference for the country who rules the nation. However, the sanction of loan is not without any condition, rather, it’s a set of policy that this institution requires in lieu of financial help to any country seeking assistance.
In exchange of loan and further improve the condition of economy, it gave a clear guideline in regard to macroeconomic imbalances in the shape of policy reforms and if the conditions/policy suggestions are not met in time, the loan amounts are withheld.
It is the normal practice of IMF in sanction of loan/financial loan to any needy country of the world which is its member.
IMF conditions and benefits: At large, the conditions and restrictions attached in granting loan amount to the concerned country is aimed to benefit the loaned nation and the system was introduced in a 1952 Executive Board decision which later became part of Articles of Agreement.
Among other things, the conditions include-cutting expenditure or raising revenues, focusing economic output, devaluation of currencies, trade liberation, promotion of foreign direct investment, balancing budgets, improving governance and removing price control and state subsidies.
In fact, these conditions were/are attached to enable the country to repay the loan amount in time and improve its economic conditions so that it rarely requires the loan in future.
There are several examples in international community when a country has utilised the IMF loan in improving their economies and also returned the borrowed money with interest on time.
In Pakistan’s case the era of IMF loan returned in the country with the coming of democratic rule under the premiership of Benazir Bhutto.
She borrowed IMF loan in the name of standby arrangement as well as structural adjustment facility commitment, although her successor Nawaz Sharif, decided not to lend money from IMF and instead agreed to accept donations from friendly countries including Saudi Arabia.
However, the economic condition of Pakistan during the premiership of Benazir Bhutto remained poor and on several occasions she approached the IMF in national interest and altogether took more than one thousand dollars to rescue the economy of Pakistan from economic crises.
Recent developments: Almost every ruler of Pakistan whether democratic or military have taken loans from the IMF under the conditions attached and like earlier the recent government headed by Imran Khan, which took over in 2018, first preferred taking loans from friendly countries such as Saudi Arabia, United Arab Emirates and China but keeping in view the deteriorating situation ultimately went to the IMF for the 22nd time in country’s history for a loan of one billion US dollar and as the data analysis of Pakistan’s economy was not in its favour, with sanctioning of loan the IMF gave certain conditions which include the hike in energy tariffs, removal of energy subsidies, increase in taxation, privation of public entities and fiscal adjustments.
The economic crisis of the country is going deep day by day and it appeared no respite with the change of guard in early 2022.
Keeping in view country’s condition, the IMF, in April 2022, considered to help Pakistan under its scheme of Extended Fund Facility (EFF) and felt the urgency of assistance to be given to Pakistan.
In its 7th review meeting held with Miftah Ismail, the Finance Minister of Pakistan, to send an IMF mission to the country.
Probably in May 2022, the authorities of Pakistan, on their behalf, requested to extend the EFF arrangement till June 2023 to address existing challenges and achieve programme objectives.
— The writer is Professor and Head, Department of Political Science, B N Mandal University, Madhepura, Bihar, India.
