Having been created by British India in 1947, Pakistan joined the IMF in 1950 in the midst of fiscal difficulties. In 1958, Pakistan became the first country to seek assistance from the IMF. IMF lent to Pakistan on a standby arrangement basis of US$25,000,000 [originally expressed in SDR, but for the purpose of this article it is assumed that 1 SDR = 1 USD. In 1965 Pakistan again sought to borrow from the IMF. The IMF gave the nation US$37,500,000 this time on 16 March 1965. As a result of the balance of payment problems, Pakistan applied to IMF again for the third time on 17 October 1968 and received US$75,000,000. In the past, the IMF has tried to resolve Pakistan’s balance of payments problems. Our article will examine the relationship between the IMF and Pakistan in terms of loans and the recent funding from the IMF for Pakistan.
IMF and Pakistan Relations
We learn some interesting facts about Pakistan’s borrowing history with the International Monetary Fund (IMF). As early as 1958, Pakistan knocked on the door of the IMF and signed an agreement to secure 25 million special drawing rights (SDRs) under a Standby Agreement with the IMF. Those funds were never withdrawn. The IMF has also curtailed the subsidies of Pakistan on many occasions.
Two IMF programs were pursued back-to-back by Ayub’s finance team in 1965 and 1968. However, this time around, they were able to withdraw the entire amount of SDR 112 million. This marks Pakistan’s first-ever interaction with the IMF.
The state was once more brought before the IMF’s doors on May 18, 1972, by Zulfikar Ali Bhutto after Ayub. Zulfikar apparently enjoyed the IMF very much, as his visits to the IMF became almost unstoppable. His tenure as chairman of the IMF saw Pakistan go to the IMF three times successively, from 1972 to 1974, and again in 1977, and withdraw 314 million SDRs in comparison to the 330 million SDRs they were supposed to withdraw.
During the Benazir-Nawaz Model of Democracy
The Pakistan Peoples Party (PPP) and the Pakistan Muslim League-Nawaz (PML-N) governments of the Benazir-Nawaz model of democracy between 1988 and 1997 entered IMF programs about eight times. Withdrawals by Pakistan during this period amounted to approximately SDR 1.64 billion. The PPP government implemented five of these programs and the PML-N government implemented three of them.
General Pervez Musharraf’s overthrow of Nawaz Sharif’s government in 1999 had a negative impact on democracy, but not IMF loans. IMF representatives have sought out Musharraf in the past. Although at a relatively low-interest rate, he managed to secure an SDR 1.33 billion loan in nine years after two attempts.
In 2008, as soon as Musharraf was ousted from power, the PPP received the biggest bailout package in Pakistan’s history, totalling SDR 4.94 billion. Those were just a few days after Musharraf’s departure. It was agreed that Pakistan would implement some reforms, such as improving tax administration, removing some tax exemptions, and introducing a rated corridor. Although macroeconomic policies were overly expansionary, the country missed the mark on fundamental reforms aimed at resolving its structural problems. In addition to tightening monetary and fiscal policies, the mission and the authorities identified structural reforms as key policy priorities. PPP governments recognized shortly thereafter that the economy performed below its potential. For the increase in youth labor to be absorbed, the country would need an average GDP growth rate of 7%.
The Loan Saga of Pakistan Continues in 2010-22
When the MPL-N returned to power in 2013, it immediately applied to the IMF for a loan, receiving the second-largest loan of SDR 4.399 billion. IMF has concluded (as of September 2016) that this three-year program has strengthened macroeconomic resilience. These programs increased growth, reduced fiscal deficits, and increased capital reserves, according to the IMF. The program also implemented structural reforms.
In addition, they cited the address of long-standing fiscal and energy sector constraints as well as the strengthening of social safety nets. Despite the completion of the project, a limited number of policy recommendations were implemented. In addition, macroeconomic vulnerabilities have resumed, including a slowdown in fiscal consolidation, an escalating current account deficit, and a drop in foreign exchange reserves. A growing number of power sector arrears are draining scarce monetary resources, while the losses of public sector enterprises are straining available resources. Exports are also stagnating.
In terms of borrowings from Pakistan, the IMF estimates that 13.79 billion SDRs have been lent to Pakistan till today, of which 47% were secured by the PPP, followed by the PML-N with 35%, and the military dictatorship with only 18%.
Conclusion
As we saw here, Pakistan and IMF have a long-standing relationship and IMF loans to Pakistan are common. Accordingly, it is likely that the IMF will implement the new deal within the timeline expected. In keeping with their previous agreement, the Umar administration has agreed to these terms and conditions. Our 22nd IMF loan in 61 years will be secured if this loan is completed in a timely manner. This time, luck will be on our side, and we will be in a better position to address our external accounts, which will ease our economy’s pain and stabilize our currency.
