Pakistan and the IMF are no strangers for each other. Since 1958, they have made 21 agreements for loans, not including the most recent one which has been signed between Imran Khan led-PTI government and IMF.
The IMF is an international organization of 189 countries working on monetary cooperation and international monetary stability. It helps member countries in three ways:
The IMF lends its member countries money. These programmes can be divided into: Lending through GRA (General Resource Account) which is normal lending to not-so-poor and wealthy countries facing economic crisis.
Pakistan’s History With IMF
When it comes to Pakistan, we see an interesting trend with the IMF programmes — they are becoming longer and larger. By longer, we mean the pay-out period is increasing. For example, between 1958 and 1977, all the programmes were of one year. Coincidentally, all the IMF programmes in this period were also bail-outs or Stand-by Agreements. There were a total of seven programmes.
Between 1980 and 1995, we were part of another seven programmes and all but one were between one and two years long. Between 1997 and 2013 — when the PML-N took out the last $6.4 billion loan — there were a total of six programmes. With the exception of one, all of them were approximately three years long. This is the 13th time we are going to the IMF to ask for a bail-out, and overall it will be the 22nd loan we have taken from the IMF.
Current IMF Loan and Pakistan’s budget
Since the agreement was reached between Pakistan and IMF, we witnesses the historic devaluation of Pakistani rupees against US Dollar and a collapsed economy. Despite government’s refusal and clarifications the current budget has been framed in light of the directives given by the IMF since it demanded a tax-loaded budget.
Some analysts talk about the content of the programme where they highlight prior actions and front and back-loaded characteristics. If the programme is front-loaded, it would compel the government to quickly follow reforms and give less space to operate. On the contrary, a back-loaded programme involves delayed implementation of reforms and is considered relatively soft. Furthermore, upward tariff adjustments of utilities are the key where prices of electricity and specifically gas have hiked a great deal.
In addition to these, subsidies need to be either completely withdrawn or targeted. Exemptions given to certain sectors of the economy need to be withdrawn in order to generate additional tax revenue. In short, every IMF programme attracts criticism from the political parties and particular sections. When these political parties are at the helm of affairs, they have recourse to the IMF and the blame goes to the previous governments.
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17 November, 2019