The IMF was established to ensure stability of the international monetary system– the system of exchange rates and international payments– enabling member countries and their citizens to carry out transactions with each other besides promoting employment, triggering sustainable growth and reducing poverty.
To achieve these objectives the IMF grants loans to low-income countries or those facing balance of payment crises at lower rates through different mechanisms including the Extended Fund Facility (EFF). While extending these loans the IMF does not ask for any collateral like commercial banks but insists on the fulfillment of certain conditions in the form of structural reforms of the economy, curtailment of expenditure, reduction in the subsidies and broadening the tax base with a view to enabling the recipient countries to rely more and more on their internally generated resources and be in a position to amicably pay off their loans in the process. Looking at these terms from an economic point of view, they seem a perfect recipe for any developing country aspiring to achieve self-sustained growth. No economic growth model can succeed without these measures.
Now the question arises: if the IMF loans are meant to help the ailing economies of the developing countries, why is it that Pakistan has not been able to achieve sustainable growth in spite of the fact that, beginning from 1958, to 2018 it has availed 23 loans from IMF?. The answer is quite simple. No government ever showed the political will to take tough decisions and initiate the desired reforms programme. A culture of tax exemptions, irresistible penchant for prestige projects that have no connection with the country’s economic realities and the strategy of planning the projects first and then looking for resources to defray them, have all led the country to a situation where the economy is almost on the verge of collapse.
It is indeed ironic that each government has been taking a dig at its predecessor for accepting harsh conditions of the IMF while itself following the same path. The fact that almost all governments availed IMF loan facilities testifies to the reality that their claims for economic development were absolutely false and they had been befooling the people by concealing the reality. However IMF has been used as a fall guy responsible for all our economic woes and for point scoring against political opponents. Even some economists have been involved in misleading the public about the rationale for seeking IMF assistance and the perceived role of the entity in warding off the financial crisis faced by the loan-seeking countries. They have been sparing the governments for their inability to utilize those loans productively.
The point is that the IMF does not grant fund facilities without a formal request by the country concerned. The extended fund facility or other loans are granted on the terms determined by the IMF. So it is a take- it-or-leave-it proposition for a country seeking the facility. As is evident the fault does not lie with the IMF conditions but with the failure of the successive governments to implement them faithfully as per the agreed programme.
The IMF conditions may be tough but if implemented faithfully can prove beneficial in the long run by putting the economy on the path of sustained economic development. It however needs strong political will to implement them setting aside political expediencies.
As it is not possible to narrate the story of failures of all the governments which have availed EFF facility, therefore for the sake of brevity and convenience I am starting from 2008 when representative rule was restored after the end of the Musharraf regime. the PPP signed a Standby Arrangement funding facility of $7.235 billion contending that it was imperative to arrest a nosedive in the economy and put the country on the path of sustainable development. However it could not complete the programme. Consequently when its rule ended, GDP growth stood at the lowest-ever rate of 3%. The PML(N) government which succeeded the PPP obtained an Extended Fund Facility amounting to $4.393 billion which was fully utilized.
However, when the PTI came to power it also told the people that the economy was in the doldrums and it had no choice but to knock at the door of the IMF for a bail-out package. The IMF agreed to provide a loan facility amounting to $6.6 billion which is still running and recently the agency undertook the ninth review. However the staff level agreement for the release of funds is still awaited.
In this regard it is worth mentioning that the PTI government at its fag end reneged on its commitments with the IMF in regards to removing subsidies and hiking prices of oil and electricity. It was a populist decision to keep a cap on the prices of electricity, gas and utilities but it had its own repercussions. It was not an honourable strategy on the part of the government which not only annoyed the IMF but also created difficulties for the country.
Consequently the PDM government had to face the brunt of that bad decision. The economy was in such a bad shape that there was no choice for the government other than re-entering the IMF programme to stem the rot. The negotiations with the IMF have been very tough because of the mistrust that the PTI government had created.
There is no doubt that accepting the IMF conditions and implementing them has made the life of the masses very difficult. But there was no other choice available with the government. The reality is that even during the PTI rule inflation remained on the upward curve and people were heard praying for the fall of the government. It continues to rise unchecked and is likely to remain so for some time. But the fact remains that it cannot be arrested without joining the IMF programme which will also open the doors for friendly countries, international lenders and donors to help Pakistan in arresting the nose-dive in the economy.
However, even if the IMF programme is revived it will require a long time to overcome the economic challenges. If any party claims that it can mitigate the suffering of the people and revive the economy immediately after coming into power, it is trying to hoodwink the people.
Regrettably the party which signed the agreement with the IMF during its rule and was responsible for the economic meltdown is now using it against the PDM government to advance its political agenda. There is no quick-fix solution available to tide over the situation.
The IMF conditions may be tough but if implemented faithfully can prove beneficial in the long run by putting the economy on the path of sustained economic development. It however needs strong political will to implement them setting aside political expediencies.
