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International monitory Fund has supports Pakistan in restructuring its economy structural reforms suggested
by IMF and implemented by the Pakistani governments. IMF always pushes government to make good living
standard of peoples of Pakistan. It provides the technical as well as material support to carry out different
reforms in Pakistan. In this research paper attempt has been made to see that how the institution of IMF
helps to increase the assistance to see Pakistan as a developed state of the world, because, IMF play a
vittles role to stabilize the Pakistani economy but on its own conditions. It maintains a high level merits while
giving the aid. An attempt has also been made to see that how and in which condition IMF support Pakistan
to improve the Pakistan s Balance of Payments deficits.
Background
The current government took office with a strong mandate to implement ambitious
economic reforms to stabilize the economy and put Pakistan on the path to growth
and prosperity. The governments plan focuses on strengthening macroeconomic
and structural policies to shore up confidence, reduce economic imbalances, foster
sustained inclusive growth, and provide employment opportunities.
Since September 2013, the IMF has been supporting the governments economic
program by means of a 36-month extended arrangement under the Extended Fund
Facility (EFF). The EFF arrangement, together with other multilateral and bilateral
program support, provides needed external financing for Pakistan, and signals the
authorities determination to implement sound policies, thereby bolstering market
confidence and catalyzing private investment and other inflows. That way, the EFF
provides a framework in helping Pakistan to retain macroeconomic stability, and
therefore to promote growth and protect the most vulnerable part of the
population.
Much has been accomplished in the first half of the program. The fiscal deficit has
been reduced, international reserves have increased substantially, and the threat
of a crisis has greatly receded. Macroeconomic prospects are favorable. However,
more remains to be done to consolidate and reinforce the gains in economic
stability and strengthen reforms for higher growth and job creation. Pakistans
aspiration is to catch up over time with other emerging market countries in key
macroeconomic and business climate indicators.
The key challenges facing the authorities are to:
Continue to build external buffers and maintain price stability. Central Bank
reserves reached over 2.5 months of imports and inflation is under 4 percent. The
central bank should continue to rebuild its foreign exchange reserves, making use
of Fund disbursements, financial support from other donors, foreign exchange
interventions, and exchange rate flexibility. A continued focus on price stability will
also be important.
Continue with prudent fiscal policy to ensure medium-term fiscal
sustainability. The reduction in the headline deficit from 8.8 percent of GDP in
2012/13 to 5.5 percent of GDP in 2013/14 (an improvement of about 1.5 percent
of GDP after accounting for one-off factors), and further to 4.9 percent of GDP in
2014/15 are important achievements. Building on these, further efforts will be
needed in the coming years to strengthen Pakistans resilience to shocks.
Facilitating higher investment. Despite recent successes in reinforcing economic
stability, investment as a share of GDP has remained too low to generate the
desirable high rates of sustainable economic growth. Over time, public investment
needs to increase significantly. To generate the necessary resources for this and
other priority spending such as health, education, and social safety nets, the taxto-GDP ratio must be raised considerably by broadening the tax base and
improving significantly on taxpayer compliance.
Implement structural reforms to achieve inclusive growth. To facilitate
higher private investment and remove obstacles to private sector-led growth, there
is a need to address longstanding problems in the energy sector (especially dealing
with the circular debt on a sustainable basis), continue reforms of the trade
regime, restructure or privatize public sector enterprises, and strengthen the
business climate.
Protect the most vulnerable. Since the outset of the arrangement, the number
of beneficiaries of the targeted income support program increased by 10 percent,
and stipends were raised by 50 percent. Throughout the program, it is a top
priority of the government to protect the poor from direct and indirect impacts of
fiscal consolidation and price adjustments by means of targeted income support.
If Pakistan wanted to postpone its stabilization efforts to focus on growth stimulus, how
would the government pay for the postponement? And how would it finance the
stimulus? Unlike the United States, which can sustain very large deficits because the
world is willing to buy U.S. government bonds, Pakistan doesnt have this luxury.
Moreover, even if you could finance it, how effective will temporary stimulus be if
investors know the government has not yet addressed underlying imbalances?
On improving tax collections and energy supply improvements, these reforms take years
to bear fruit. Tax administration reforms will take 2-3 years to generate significant
improvements in revenues. Energy supply enhancements can take even longer. So while
it was essential to start those at the beginning of the program, the government made the
wise decision to include quick wins early on to address the vulnerabilities while the
reforms with longer gestation periods are ramping up.
4. IMF policies will hurt the poor, who will pay the brunt of the adjustment.
The program will broaden the tax base, and cut subsidies for the rich, while
maintaining low energy prices for the lowest consumers and increasing public
spending on the poorest.
In this program, deficit reduction will come not from cutting education and health
programs, but mostly from raising revenues. This involves bringing people into the tax
net by eliminating loopholes and special privileges, and by improving tax administration
and enforcement. In Pakistan, a country of 180 million people, only 1.2 million
individuals and firms file income tax returns, of which about half are corporate filers.
That must change so that more of the burden falls on those who can most afford to pay.
Energy subsidies mostly benefit a small proportion of the population. The wealthiest are
those who consume the most energy, so an across-the-board subsidy helps them most.
The rest of the population has to endure 8-10 hours a day of load shedding during the
summer months without being able to afford the private generators of the rich. Under the
program, the lowest consumption levels will continue to be subsidized, while prices will
go up to fully cover costs for the wealthiest. Energy supply will be better and loadshedding will fall.
The program also includes higher social spending. The 2013/14 budget includes a
significant rise in education spending. The program also entails a large increase in
targeted transfers to the poorest, through the expansion of the Benazir Income Support
Program (BISP), a national cash-transfer scheme. The government will expand the
program with the help of donors, which currently reaches 4.9 million households, to
reach 6.6 million families. The stipend has increased by about 20 percent, and it will be
adjusted for inflation in the future.
5. The program will generate recession; hurt the economy and the business sector.
Growth will initially fall, but will be much higher over time.
In the short-run it is true that fiscal adjustment will reduce growth. But continued
instability would hurt growth much more by pushing the economy into crisis. The
government has geared its structural reforms to enhance growth in the medium- and longterm. These reforms include measures to ease the energy bottlenecks that strangle
economic activity, and steps to promote trade, improve the business climate and the
competitiveness of Pakistani industry. More efficiency and competition will help generate
more investment and millions of new domestic jobs.
6. This program is doomed to fail as did previous programs.
While success is by no mean guaranteed, this is an historic chance to fix longstanding economic problems and put the country on a higher growth path.
The governments program aims to overhaul some of the structural deficiencies that have
plagued the countrys economic prospects, while pursuing, at the same time sound
macroeconomic policies and protecting the most vulnerable from the effects of fiscal
consolidation, through the expansion of social safety nets. Program design has been
adjusted to take into consideration the lessons of past failures and the IMF is willing to be
flexible to adapt to unexpected developments. Support from other institutions is being
mobilized to help. Prospects for success are enhanced by a democratically elected
government firmly committed to doing what it needs to do to fix these long-standing
problems and achieve its objective of making life better for 180 million Pakistanis.
https://blog-imfdirect.imf.org/2013/12/19/pakistan-the-realities-of-economicreform/
The International Monetary Fund and the World Bank were created in 1944 at a conference
in Bretton Woods, New Hampshire, and are now based in Washington, DC. The IMF was
originally designed to promote international economic cooperation and provide its member
countries with short term loans so they could trade with other countries (achieve balance of
payments). Since the debt crisis of the 1980's, the IMF has assumed the role of bailing out
countries during financial crises (caused in large part by currency speculation in the global
casino economy) with emergency loan packages tied to certain conditions, often referred to
as structural adjustment policies (SAPs). The IMF now acts like a global loan shark, exerting
enormous leverage over the economies of more than 60 countries. These countries have to
follow the IMF's policies to get loans, international assistance, and even debt relief. Thus, the
IMF decides how much debtor countries can spend on education, health care, and
environmental protection. The IMF is one of the most powerful institutions on Earth -- yet few
know how it works.
The IMF has created an immoral system of modern day colonialism that SAPs
the poor
The IMF -- along with the WTO and the World Bank -- has put the global economy on a
path of greater inequality and environmental destruction. The IMF's and World Bank's
structural adjustment policies (SAPs) ensure debt repayment by requiring countries to
cut spending on education and health; eliminate basic food and transportation
subsidies; devalue national currencies to make exports cheaper; privatize national
assets; and freeze wages. Such belt-tightening measures increase poverty, reduce
countries' ability to develop strong domestic economies and allow multinational
corporations to exploit workers and the environment A recent IMF loan package for
Argentina, for example, is tied to cuts in doctors' and teachers' salaries and decreases
in social security payments.. The IMF has made elites from the Global South more
accountable to First World elites than their own people, thus undermining the
democratic process.
without input from other government agencies such as health, education and
environment departments. The institution has resisted calls for public scrutiny and
independent evaluation.
policies, and environmental ministries and groups are not included in policy making. The
focus on export growth to earn hard currency to pay back loans has led to an
unsustainable liquidation of natural resources. For example, the Ivory Coast's increased
reliance on cocoa exports has led to a loss of two-thirds of the country's forests.
The IMF bails out rich bankers, creating a moral hazard and greater instability
in the global economy
The IMF routinely pushes countries to deregulate financial systems. The removal of
regulations that might limit speculation has greatly increased capital investment in
developing country financial markets. More than $1.5 trillion crosses borders every day.
Most of this capital is invested short-term, putting countries at the whim of financial
speculators. The Mexican 1995 peso crisis was partly a result of these IMF policies.
When the bubble popped, the IMF and US government stepped in to prop up interest
and exchange rates, using taxpayer money to bail out Wall Street bankers. Such
bailouts encourage investors to continue making risky, speculative bets, thereby
increasing the instability of national economies. During the bailout of Asian countries,
the IMF required governments to assume the bad debts of private banks, thus making
the public pay the costs and draining yet more resources away from social programs.
contrary, it presents a huge burden for the common man, but this
is more because of stagnant wages due to the absence of
industrialisation than due to the deficit. It is worth noting that
countries such as Japan, South Korea and Brazil grew rapidly with
higher inflation than Pakistan did. This was made socially and
politically sustainable because real wages were rising too. In
Pakistan, another IMF favourite slashing subsidies on basic
commodities only serves to enhance the pain inflicted by
inflation rather than leading to any competitiveness.
Ironically, even if we were to make deficit reduction our primary
goal, over and above any developmental goals that we may have,
the IMF dictated policies are unlikely to achieve even that. This is
due to the fact that the nature of cuts the IMF advocates stifle
prospects for long-term growth by retarding development. The
IMFs policy towards Public Sector Enterprises (PSE) is a case in
point. The policy is to privatise PSEs and use the proceeds to
repay debt and prevent the PSEs from being a further drain on the
exchequer. This view continues to hold despite the fact that
competing countries have created national champions out of their
PSEs. Rather than driving them into the ground, they have used
them to develop valuable capabilities and develop key sectors.
Countries that started behind Pakistan and have since overtaken
it, developed their human capital by investing in crucial areas
including, health and education. The IMF, on the other hand,
advocates privatisation of these while insisting on the most
unproductive expenditure of all: domestic and external debt
service. According to the Ministry of Finance, Pakistans debt
service alone made up nearly 30 per cent of the current
expenditure in FY 2011-12 . That is over 1.5 times the
development expenditure for the same period. Also ignored are
I write with regard to the article by Natalya Naqvi titled The IMF
and us, which appeared on August 27, 2012. Ms Naqvi has a go
at everyones favorite bugaboo: the International Monetary Fund.
Her article is interesting but I beg to differ with much of what she
says. However, since there is only so much I can write here, she is
welcome to get in touch with me via email.
Ms Naqvis first sentence that the IMF has had a key influence
on the conduct of macroeconomic policies in Pakistan leaves me
bewildered. Considering we have never implemented an IMFfinanced programme (save the one during the previous regime
or so it is claimed), this postulate has no merit at all. However, I
will concede that some reforms were undertaken as part of our
agreements with the IMF in the areas of central bank autonomy,
prudential supervision, open market operations, interest and
exchange rate flexibility, and privatisation (even if that was
handled by financing from the World Bank). In other areas, and
especially on the fiscal side the mother of all evils Pakistan
burdensome subsidies that benefit primarily the rich. Most levelheaded economists would be too. On her additional point about
PSEs (public sector enterprises) becoming national champions,
I would ask her how she would rate our national champions of
today: PIA, the railways and the Pakistan Steel Mills? Should we
just hang on to these dying national champions?
Finally, if the writer thinks that the persistence of double-digit
inflation in Pakistan has very little to do with fiscal slippages (and
how they are financed), and everything to do with domestic and
external shocks, I recall a story told to me about a meeting of the
Economic Committee of the Cabinet (ECC) which Ms Benazir
Bhutto chaired. She was being assured that inflation was being
caused by the price of onions and potatos, and had nothing to do
with the stance of macroeconomic policies. With economic advice
like that, no wonder her government was toppled twice.
IMF
chit for release of
$1.1 gives
billionclean
to Pakistan
The International Monetary Fund (IMF) says its mission held productive
discussions with government and central bank officials on Pakistans economic
performance under the EFF program and is encouraged by the overall progress
in strengthening macroeconomic stability and output growth.
In a statement after the talks with Finance Minister Senator Ishaq Dar and senior
Pakistani officials, the IMF said the mission reached staff-level understandings
with the authorities on a Memorandum of Economic and Financial Policies which,
upon managements approval, will be considered by the IMF Executive Board in
December to conclude the fourth and fifth reviews. Upon the Boards approval,
SDR 720 million (about US$1.1 billion) will be made available to Pakistan.
The International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks,
visited Dubai from October 29-November 8, 2014 to conduct discussions on the
fourth and fifth reviews of Pakistans SDR 4.393 billion (about US$6.6 billion)
Extended Fund Facility (EFF), approved by the IMFs Executive Board on
September 4, 2013. The mission met with Finance Minister Ishaq Dar, State
Bank of Pakistan (SBP) Governor Ashraf Wathra, and other senior officials.
The IMF statement said Pakistans economic indicators are improving, with
growth expected to reach 4.3 percent in fiscal year (FY) 2014/2015, inflation on a
downward trajectory, and credit to the private sector expanding at a robust pace.
The external current account deficit was somewhat higher than expected over
the past two quarters, with lower goods exports and higher imports partially
compensated by strong remittances performance. The rapid build-up of gross
reserves which rose from US$5.4 billion at the end of March to US$9.1 billion by
the end of June 2014 stalled thereafter due to delays in divestment and Sukuk
transactions and the effects of political uncertainty on capital flows. However,
going forward reserves are expected to surpass 3-months of imports by the end
of FY 2014/2015.
It said despite some difficulties, the authorities reform program remains broadly
on track, with the government and SBP meeting most quantitative performance
criteria for end of June and end of September 2014. The authorities are
committed to taking the necessary corrective actions for missed targets, and with
these actions, they will be on-track to meet their objectives for end-December.
The mission was pleased that the government met the indicative targets on
social transfers to the poor under the Benazir Income Support Program (BISP).
Staff welcomed the governments efforts to expand support to the poor through
the BISP to 4.8 million eligible families by the end of this year.
The mission was encouraged by the strong fiscal performance achieved during
FY 2013/2014, and by the authorities determination to further lower the deficit to
4.8 percent of GDP in the current fiscal year. Progress is being made in
broadening the tax base by eliminating tax concessions and exemptions granted
through Statutory Regulatory Orders (SROs), strengthening anti-money
laundering legislation, and implementing tax administration reforms to enhance
compliance and enforcement. However, continued efforts are needed to improve
the tax-to-GDP ratio and create resources to finance much-needed spending on
investment and social development, while making the taxation system more
Though IMF funds are helpful in many ways, there are certain areas where
the IMF fails to address the member nations. The disadvantages of IMF are
discussed briefly below
exchange
stability and
1971
when
U.S
refused
convertibility
of
dollars
into
disequilibrium.
If
inflation
persists,
devaluation
of
3. Non-removal of
restrictions by IMF
foreign
exchange
One of the important objectives of the IMF has been to remove foreign
exchange restrictions which retard the growth of global trade. Still,
member countries follow unhealthy practices of exchange controls and
multiple exchange rates. Consequently, the international business is
adversely affected.
4. Inadequate resources
The resources at the disposal of the IMF are not adequate to cater to
the needs of member countries which is a setback of IMF. Uncertain
capital inflows into the international financial system necessitates the
strengthening of the fund resources. The resources of the fund may be
enhanced by raising the quota. But developed countries are reluctant
to increase the quota of the fund.
in
productivity,
improvement
in
resource
allocation,
whole
East
Asian
region
witnessed
widespread
recession,
unemployment and low growth rates. The IMF was expected to follow
a debt rescheduling plan. But this scheme was not introduced at the
insistence of the United States and other advanced countries. Milton
the
IMF
fails
to
address
the
member
approach by IMF
1.
nations.
Passive
The IMF has been passive in its approach and not been effective in
promoting
exchange
stability and
one per cent below the official price. This is called adjustable peg
system. The exchange rate of currency was fixed in terms of golden
dollar. Over years, U.S gold stock declined and U.S balance of
payments suffered. It led to the collapse of Bretton Wood System in
August
1971
when
U.S
refused
convertibility
of
dollars
into
disequilibrium.
If
inflation
persists,
devaluation
of
3. Non-removal of
restrictions by IMF
foreign
exchange
One of the important objectives of the IMF has been to remove foreign
exchange restrictions which retard the growth of global trade. Still,
member countries follow unhealthy practices of exchange controls and
multiple exchange rates. Consequently, the international business is
adversely affected.
4. Inadequate resources
The resources at the disposal of the IMF are not adequate to cater to
in
productivity,
improvement
in
resource
allocation,
whole
East
Asian
region
witnessed
widespread
recession,
unemployment and low growth rates. The IMF was expected to follow
a debt rescheduling plan. But this scheme was not introduced at the
insistence of the United States and other advanced countries. Milton
Friedman blamed the IMF for global crisis.
Criticism of IMF
The problem is that these policies of structural adjustment and macro economic
intervention make the situation worse.
In 2001, Argentina was forced into a similar policy of fiscal restraint. This
led to a decline in investment in public services which arguably damaged
the economy.
2. Exchange rate reforms. When the IMF intervened in Kenya in the 1990s, they
made the Central bank remove controls over flows of capital. The consensus was
that this decision made it easier for corrupt politicians to transfer money out of the
economy (known as the Goldenberg scandal, BBC link). Critics argue this is
another example of how the IMF failed to understand the dynamics of the country
that they were dealing with insisting on blanket reforms.
The economist Joseph Stiglitz has criticised the more monetarist approach of the
IMF in recent years. He argues it is failing to take the best policy to improve the
welfare of developing countries saying the IMF was not participating in a
conspiracy, but it was reflecting the interests and ideology of the Western
financial community.
3. Devaluations In earlier days, the IMF have been criticised for allowing
inflationary devaluations.
4. Neo Liberal Criticisms There is also criticism of neo-liberal policies such as
privatisation. Arguably these free market policies were not always suitable for the
situation of the country. For example, privatisation can create lead to the creation
of private monopolies who exploit consumers.
5. Free market criticisms of IMF
As well as being criticised for implementing free market reforms Other criticise
the IMF for being too interventionist. Believers in free markets argue that it is
better to let capital markets operate without attempts at intervention. They argue
attempts to influence exchange rates only make things worse it is better to
allow currencies to reach their market level. [criticism of IMF]
There is also a criticism that bailout countries with large debt creates
moral hazard. Because of the possibility of getting bailed out it encourages
people to borrow more.
Because the IMF deal with economic crisis, whatever policy they offer, there is
likely to be difficulties. It is not possible to deal with a balance of payments
without some painful readjustment.
2. IMF have had some successes
The Failures of the IMF tend to be widely publicised. But, its successes less so.
Also criticism tends to focus on short term problems and ignores longer term view
3. Confidence
The fact there is a lender of last resort provides an important confidence boost
for investors. This is important during current financial turmoil
4. Countries are not obliged to take an IMF loan
It is countries who approach the IMF for a loan. The fact so many take loans
suggest there must be at least some benefits of the IMF.
5. IMF easy target
Sometimes countries may want to undertake painful short term adjustment but
there is a lack of political will. An IMF intervention enables the government to
secure a loan and then pass the blame on to the IMF for the difficulties.