IMF conditionality and Pakistan

Muhammad Javaid

PTI government was looking desperately financial rescue from friend countries. Saudi Arabia is first country who provided $6 billion breathing space to Pakistan’s economy on an annual basis in the shape of cash assistance and oil on deferred payments. Saudi Arabia will place $3 billion cash deposits with the State Bank of Pakistan, in addition to providing a one-year deferred payment facility for the import of oil, worth up to $3 billion, according to the Foreign Office. The Prime Minister Imran Khan was looking confident to have some sort of breathing space from Saudi Arabia, China and most probably from Malaysia. The Saudi assistance will double the official foreign currency reserves to decrease the stress on the external sector. After successful visit of Sudia, visit to China and Malaysia also be expected productive. All these efforts will release the pressure to negotiate with IMF. Certainly IMF will come with conditionality.
World Bank and IMF conditionality is more important now than ever before. World Bank Provide loans on concessional rates through IDA. The IMF also provides loans at lower rates to poor countries through its lending facility to low income countries for Poverty Reduction and Growth Facility (PRGF). IMF has responsibility to play a significant role in determining poor countries’ ability to gain access to other donors’/creditors’ development finance in the years to come. This is because nearly all official development donors/creditors (bilateral and multilateral) tie their development aid and debt relief to the presence of an IMF program. The IMF makes the conditions the Fund attaches to its program enormously strong. If a poor country does not fulfill the conditions that the IMF attaches to its lending, then not only does it forfeit IMF development finance, it will also potentially forfeit all other sources of much-needed donor finance.
The impoverished countries still face an unacceptably high and rising number of conditions in order to gain access to World Bank and IMF development finance. The past record reveals, on average poor countries face as many as 67 conditions per World Bank loan. However, some of the countries faced a far higher number of conditions. Uganda, for example, where 23% of the all children under 5 are malnourished, faced a staggering 197 conditions attached to its World Bank development finance grant in 2005. In addition to imposing a massive administrative burden on already over-stretched developing governments, the propagation of IMF and World Bank conditions often push highly controversial economic policy reforms on poor countries, like trade liberalization and privatization of essential services. These reforms frequently contravene developing countries’ wishes, an acknowledged prerequisite for successful development. They can also have a harmful impact on poor people, increasing their poverty not reducing it, by denying them access to fundamental services.
This damaging impact has been recognized by the British government and Norwegian government, both of which have formally rejected tying their development aid to privatization and trade liberalization conditions. The G8 leaders also highlighted the importance of national governments’ sovereign right to determine their own national economic policies, revealing the inappropriateness of tying development finance to these types of reforms. The World Bank and IMF impose privatization-related conditions on developing countries more repeatedly between 2002 and 2006. These conditions require for privatization of banks, electricity and telecommunications sectors and additional reforms to the gas and petrol sector that will facilitate private sector involvement. In case country is reluctant to privatize than country is asked to get rid of subsidies on electric and gas to reduce the current account deficit. IMF lending reforms approved in 2009 streamlined conditionality in order to promote national ownership of strong and effective policies
Radical reform of IMF and World Bank conditionality is needed immediately. The World Bank and IMF need to totally re-think their current approach to development finance policy conditionality. Recent attempts by both the institutions to ‘streamline’ development finance conditionality have failed. Institutional guidelines to reduce the number and scope of conditions imposed are not being implemented properly, and are not sufficient to protect developing countries from the negative impact of complicated conditionality. If reform is delayed any further, World Bank and IMF conditionality will continue to hinder rather than aid poor countries ability to fight poverty and meet the internationally agreed Millennium Development Goals.
Any country when borrows from IMF, its government agree to adjust its economic policies to overcome the problems that led it to seek financial aid from international community. These loan conditions also serve to ensure that the country will able to repay the loan. Conditionality in its broad sense covers both the macroeconomic and structural policies and the specific tools used to monitor progress toward the targets outlined by the country in cooperation with the IMF. Conditionality helps countries solve balance of payments problems without resorting to measures that are harmful to national or international prosperity. At the same time, the measures are meant to safeguard IMF resources by ensuring that the country’s balance of payments will be strong enough to permit it to repay the loan. All conditionality under an IMF-supported program must be either critical to the achievement of macroeconomic program goals or for monitoring implementation, or necessary for the implementation of specific provisions under the IMF’s Articles of Agreement and policies there under.
The World Bank and IMF have both introduced guidelines for their staff urging them to limit conditions that are deemed critical. However institutional guidelines to reduce the number and scope of conditions imposed are not being implemented properly, and are not sufficient to protect developing countries from the negative impact of onerous conditionality. While the IMF continues to impose specific and binding conditions on recipient countries, the guidelines for its staff are vague and non-mandatory. They also do not apply to all conditions. One reason is being given that the IMF staff is not acquainted with the economic, social and local political psychology of the borrowing countries.
IMF delegation is expected to visit Pakistan in November obviously with its conditions. Since Pakistan has got some assistance from Saudia and might be from China and Malaysia by that time so will comparatively in good position to negotiate. However it needs comprehensive preparation of our negotiating team. Pakistan’s team must be vigilant and try to not accept interference in micro manage, cross conditionality and controversial economic policy conditions which push privatization and trade liberalization related reforms, even if these are contained in nationally owned policy or in PTI agenda. No doubt Pakistan needs lot of reforms in governance, privatization, trade, improve balance of payments & current account deficit but it need to prepare comprehensive plan by our own experts according to our own priorities and not set by IMF staff. Pakistan’s negotiating team may prepare a outlines of reform program to discuss with IMF team.
—The writer is ex-Chief, Planning Commission of Pakistan.

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