IMF and Pakistan

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Muhammad Javaid

Long debate is going on whether Pakistan should go to IMF or not without looking into the role of IMF in the economy of developing countries and what options are available with Pakistan. The developing countries like Pakistan always have a pressure of IMF (International Monetary Fund) due to unrealistic economic policies, if exists then due to non execution. The IMF was established in 1944, with an aim to stabilise the economic system of developing countries by stabilising their exchange rates and assist in the modernization of the world’s international payment system. Pakistan became a member of the IMF in 1950 and the first time the Government of Pakistan applied for a loan of $25 million in 1958 which could not be matured due to political disturbance. However Pakistan has started to receive loans since 1965. It is evident from history that every government knocked the door of IMF when ever required to overcome the economic problem. The record depicts that Pakistan’s debt rapidly increased during the last three decades. IMF is known as a cruel moneylender forces poor countries to accept its conditions. It is interested to scrutinise that mostly developing countries takes loan to overcome the poverty but after utilising loans the countries sink further into poverty.
IMF funding has been one of the most debated issues from the last few years in terms of its policies, restrictions and its impact on the economy of country under IMF programs. A number of studies have been done in this regard. The most studied determinants explaining the role of IMF on economy are exchange rate, foreign direct investment, external debt, government borrowing, inflation and current account deficit. The findings of these studies suggested an inverse relationship between debt (domestic & external) and economic growth. The negative effect of external debt is stronger on the economic growth in comparison to domestic debt. Economists argue that IMF assistance programs increase risk for healthy economies and do not provide long-term benefits for troubled economies. On the other hand some researchers found strongly positive economic growth effects of IMF funding. In spite of all these the question is why Pakistan is approaching to IMF, apart from resolving unfavorable current balance of payment it will secure access of funds from other international financial institutions even from bilateral donors. The opportunity will also provide to take the unpopular decisions. IMF is group of around two hundred donors each donor follows IMF policy and instructions towards lending process. The above reason appears to be quite credible and reasonable and every government repeating these but question then arises is: why did success in implementing these programs prove so elusive?
Previously the reason was given frequent changes in the government but since 2002 every government completed its tenure and was having full time to overcome the economic problems. The leadership led to new agreements with the IMF and one of the reasons cited was economic mismanagement of previous government. It would be pertinent to point out that there was no difference of opinion among the two major political parties who alternated in power since 2006 as far as the nature of reforms was concerned. Their views also coincided with the IMF program contents. In other words, economic management and meeting the commitments with international financial community cannot be divorced from miss management and poor governance.
The other reason often given by government officials that strict conditionality is hurdle to achieve the targets as the IMF plan basis on wrong economic facts. The diagnosis of the economic problems carried out by the IMF staff is partial and incomplete. As they do not have any foundation in the specific political realities or awareness of the institutional capacity their technical analysis is sound but does not capture the full feasibility of implementation of reforms. More damaging is the condemnation that the design of the program is driven too much by rigid and ideological agenda of liberalization, privatization and deregulation. The IMF holds a uniform set of universal economic precepts to be valid across countries and the initial conditions, market imperfections, structural rigidities, immobility of factors and other peculiar features of developing economies do not seem to figure in the design and formulation of the programs. The present government can take unpopular decisions as it is its first term and has inherited serious financial crisis and assumed power with a commitment to avert this crisis.
The history of relationship with IMF depicts that the Government has to play its role in increasing the pace of economic growth in Pakistan. For reducing the level of borrowing government should increase the GDP and IMF charges and decreases the exchange rate and measures to reduce the pressures of other factors i-e bad governance, ridiculous government priorities, awful financial discipline and many others administrative & social factors.
—The writer is ex-Chief, Planning Commission of Pakistan.

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