IMF Policies: Is it a trap for Pakistan’s Progress?

Written by Ghanwa Saeed

International Monetary Fund IMF is a financial or neoliberal institute which was formed in 1944 as a result of Bretons Wood Conference. It aims at providing loans and debts to its member states who are in financial crises so that their sufferings would be lessen to some extent and after that they can easily do trade and business with other states. Developing countries like that of Pakistan is entirely dependent upon IMF for its economic well being. Since, 1980’s the economic structure of Pakistan has been shaped by the policies of this institute. And because of such neoliberal policies and agendas, this country is caught in a viscous cycle of loans which in turn suppresses its overall growth and development.

Pakistan has knocked at the doors of IMF for the very first time in 1958. Since then it kept on borrowing loans from this institute. In 2008, under Pakistan People’s Party PPP government, $4.93 billion dollars loan was withdrawn which was the biggest amount and then again in 2013, under PML-N regime second largest loan was withdrawn and the actual amount was $4.39 billion dollars. In whole of these 75 years, Pakistan has requested IMF for 23 times, and now again in 2024, the country is known to borrow loan of $6 billion dollars from IMF.

Since its very inception in 1947, Pakistan has been facing so many challenges which are hampering its progress and prosperity overall. And some of the major challenges that have broken the reed of Pakistan’s economy might include poverty, unemployment, inflation and fiscal deficits. The unemployment rate in Pakistan has been increased from 6.9% to 8.5% in 2023 and the number of unemployed people in the labor market seems to be 5.6 million in 2023 which might leads to the economic disparities and inequalities in a state.

These issues have forced the country to seek financial assistance from IMF. In order to solve these issues and address them on every forum this neoliberal institute has introduced certain economic reforms in a country but with the varying risks. For instance, privatization of enterprises, low tax revenues, and high fiscal deficits has not just contributed to socio-economic disparities but has also aggravated the political instability and raised security concerns in a state. The recent pandemic of 2019, COVID-19 and lockdowns has further intensified the tensions and pushed Pakistan at the verge of economic quagmire and made it totally IMF dependent.

These adjustments are the most pivotal part of IMF programs and policies. They work as a double edge sword for the developing countries like Pakistan. On one hand they restore states economy, fiscal disciplines and long term growth by highlighting issues on every forum. They tend to attract the foreign investments and minimize the government spending on health and education sector. Such austerity measures eliminate subsides and build up structural reforms. But on the other hand, these efforts may pose significant social, economic and political hardships and promote unemployment, poverty and inequality as well. Also the social and political unrest resulting from these measures further hampers the economic condition of a state and makes it difficult to achieve the desired outcome.

The government adopts either exceptionary or contractionary policies to mitigate issues resulting from these austerity measures. Expansionary policies are typically used when the states are economically running low or are in a recession phase. Such policies aim to low tax rates along with that of interest rates and increases the government spending. It was so because low interest rates increase consumption demand and investment and hence boost the economic activity of a state. Whereas, the contractionary policies increases tax rates, interest rates and lowers the government spending due to which things become more expensive and it would be difficult for an average household to meet the basic necessities of life. Although it’s sole purpose was to cool down the overheated economy and inflation but with varying outcomes.

Under this situation, Pakistan requires expansionary policies but due to the pressure from IMF it is surviving under contractionary policies. IMF is pressurizing the countries to privatize their public sector, and in Pakistan major focus is on its airlines, railways, and WAPDA and steel mills. It was so because, in the coming fiscal year IMF is known to impose tax of 1.3 trillion dollars on its member states and told them to increase their taxes otherwise they have to suffer a great deal. Apart from that the interest rates were to be increased from 19 to 20% which may have an impact on private consumption expenditure.

For the past few decades Pakistan’s economy is entrapped in a continuous cycle of debts and loans which has just promoted underdevelopment across the country. Instead building new policies and agendas against already existing austerity measures, IMF is still supporting them which has heightened the tensions and has aggravated the human and developmental sufferings. The government of Pakistan is facing this issue because of debt repayments of health education and climate by IMF which has badly affected the decision making ability of a state and also its representation among other international institutes and bodies. It is noteworthy to say that IMF policies are really a trap for under developed countries like that of Pakistan. It has positive and negative aspects as well but in case of Pakistan it has shown its dark side. And for that reason Pakistan is going to knock for 24th time at the doors of this neoliberal institute but in spite of this the government of Pakistan should keep in mind its financial condition before entangling itself into this never ending cycle of loans.