The IMF: Pakistan’s History And Future With The Lender Of Last Resort – OpEd


Last year marked the end of Pakistan’s most recent IMF Loan Programme. While many commemorate at the thought of finally coming out of the programme and its forced macroeconomic restrictions, others remain doubtful about our future with the Fund. Are we likely to relapse into the fold of yet another burdensome and economically disastrous programme? In truth, our relationship with the IMF has been a long and uncomfortable one. Loans from the Fund continue to be the gift that keeps on giving, even if at times we do not want it, and certainly regardless of whether or not we are in the position to return it.

As of 1988, Pakistan has entered into 12 different programmes with the IMF, which by contrast, is greater than all countries in the region combined. India till now has signed only 1 facility with the Fund, while countries such as Nepal and Bangladesh have signed a mere 2. Pakistan, for this very reason, was classified as a ‘prolonged user’ by the IMF in 2002, ranking third in the world, higher than every low-income African nation, but surpassed only by two countries; the Philippines and Panama.

One reason for this most certainly has been our constant and very costly effort to keep at par with India, economically and militarily, as well as our long-standing war on terror, all of this done too in the face of exceptionally low levels of savings in the country. As a result of such expenditures, our external accounts have typically remained under pressure, which along with soaring costs of commercial borrowing from international markets, made the IMF was an easy solution to our problems.

For Pakistan unfortunately, out of the programmes we have signed on, we have been unable to complete the majority of them, thereby abandoning them halfway. It would seem, therefore, that any merriment surrounding the completion of our latest programme is exceedingly warranted, given that we have only successfully completed a total of 4 programmes over the last two decades.

As a result of being continuously under several IMF programmes across the last two decades, Pakistan’s economy has faced many blows. No loan comes without a price, and in IMF’s case, this meant we were obligated to implement a series of poorly designed structural programmes, which left the economy in terrible shape. Under the Fund, we saw dramatic reductions in subsidies, overall public spending on critical areas such as health and education, as well as a wage freeze and a ban on employment in the public sector for the sake of austerity and fiscal consolidation. In a country such as ours, where the government is the largest employer, this undoubtedly had serious adverse effects. As a result of such policies we saw a fall in investment and growth rates, while unemployment, poverty and inequality rose.

So the question arises, did Pakistan end up in the clutches of an egocentric lender? If so, then why do we continue to borrow, if it does us so much harm? While it would be convenient to make the IMF the culprit for all our troubles, that isn’t entirely the case. Turning to the IMF on many occasions has certainly been the right decision given the state of affairs at the time. The IMF is considered as a lender of last resort, meaning when a country is on the verge of a sovereign default and is unable to obtain a loan elsewhere, it turns to the IMF. Therefore, faced often with depleting foreign exchange reserves and balance of payment problems, our unending relationship with the IMF is henceforth not surprising. Once part of a programme however, many at times the reason for our failure has been the result of our own government’s lack of political will to implement policies, such as those needed to mobilize funds through domestic resources (for example through taxation) as well as other factors such as widespread corruption, economic mismanagement or numerous exogenous shocks, namely terrorism, unforeseen natural disasters, hike in oil prices, etc.

But does necessity mean we must blindly adhere to all of our lenders demands, in spite of how damaging they may be?

It is no secret that IMF’s working model is seriously flawed, and has far-reaching consequences for economies. Most programmes are ‘self serving’ in nature, aimed to help the Fund retrieve their money rather than fix the economy of the borrowing country. In fact, judged on its mission to ‘promote high employment and sustainable economic growth, and reduce poverty around the world’, the IMF is an utter failure. The Fund has lent billions of dollars to developing nations since its formation, but such loans have in fact hurt their clients and reduced economic opportunities, instead of promoting growth.

Loans from the Fund and other multilateral institutions have left the citizens of borrower nations heavily burdened with enormous debts and, as a result, deprived of meaningful economic opportunities. This anti-growth reputation is as a result of the Fund’s fixation with fiscal austerity and stabilization-first policies, an approach it prescribes religiously, irrespective of individual country circumstances.

In addition to its ineffectiveness in maintaining economic stability and growth, many accuse the Fund of being a tool of the United States foreign policy, advancing the country’s strategic and economic interests. Being the only nation with an outright veto helps Washington sway decisions to its benefit, which are often taken not on the basis of strong economic motives, but rather political ones. This can be plainly grasped in our own relationship with the Fund, whose pockets are generous to us during times when Pakistan’s position is favorable with the West and penny-pinching otherwise. By far the best example of this has been post 9/11, when we were handed a very large hearted loan package as a compensation for joining America’s war on terror.

To conclude, while ending our dependency on the IMF may be far-fetched, one thing remains clear; future programmes with the Fund, if any, must be negotiated bearing in mind the needs and interests of our own people and economy. Furthermore, it is well time for the IMF, along with other Breton Wood Institutions, to change their outlook on the economics of lending and abandon the damaging cookie-cutter approach to which they cling on so dearly.

*Sara Cheema currently works as a Research Associate at the Strategic Vision Institute (SVI), Islamabad. She can be reached at [email protected]

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