Pakistan Reader# 162, 9 March 2021
Pakistan has received assistance from IMF a number of times to overcome its economic difficulties. Despite this, it is one of the most hated international institutions in the country. Several reasons have contributed towards the hostility against IMF.Abhiruchi Chowdhury
Pakistan in 2019, under the PTI government, signed up for a USD six billion loan from the International Monetary Fund owing to its weak public finances and stagnating economy. The three-year structural adjustment program focusses on stabilising Pakistan’s economy for the time being with a long-term aim of economic growth. It also aims to minimize the budget deficit by increasing the tax collection.
This has led to a spike in indirect taxes and utility tariffs, a step which received intense public criticism. In spite of the loan, some leading economists believe this would only provide a temporary relief to Pakistan; it additionally has to borrow from the commercial market inform of short- and medium-term loans. The only positive aspect of the bailout package is that it would provide dependability to Pakistan’s economic policies which would help it for getting funds from other forums as well. (“IMF bailout package – rescue or trap for Pakistan,” Dawn, 16 May 2019)
Pakistan and the IMF: Five phases
Pakistan has a long history of receiving economic assistance from the IMF. The historical relations between IMF and Pakistan could be categorised into four broad phases of interaction.
The twenty-year period from 1950 to 1970 marks the first phase in the relations between IMF and Pakistan. Exports of primary commodities from Pakistan dropped during this phase after the Korean crisis came to an end. The decline in domestic production pertaining to the drought condition and political instability made the situation worse. As a result, Pakistan under Ayub Khan’s military government had to approach the IMF for economic assistance.
In the second phase (1970-1980), Pakistan underwent through numerous amounts of difficulties due to East Pakistan being cut off from it. Foreign reserves dwindled as it now required foreign exchanges for the trade which was earlier carried in domestic currency. Other factors such as Bhutto’s economic reforms, floods of 1973, and pest attack of 1977 on cotton further abated the balance of payment (BOP) crisis in Pakistan. The IMF lending provisions during this period such as the Oil facility and Compensatory Facility aided Pakistan to cope with its BOP crisis.
The third phase (1980-99) was one of the most crucial periods in the relationship between the IMF and Pakistan. The concept of Extended Fund Facility (EFF) was introduced in this period. The IMF, which was seen as an institution for solving small and temporary balance of payment crisis in developing countries now resorted to provide medium-term structural adjustment programs (SAP) to resuscitate the stagnant economic growth in those countries.
Pakistan had a brief period of disengagement with the IMF from 1983 to 1988 which was resumed again under Pakistan People’s Party government owing to the balance of payment crisis, budget position and dwindling levels of foreign reserves. The country, due to the proposed IMF economic adjustments, went through serious economic hardships which sowed the seeds of hatred towards the IMF in Pakistani population. Further, the arrangements between the IMF and Pakistan were terminated after it carried the Nuclear tests in 1998.
In the fourth phase (1999-2010), under General Musharraf’s government, a special arrangement known as Poverty Reduction and Growth Facility (PRGF) was signed between IMF and Pakistan in 2001.
The arrangement envisaged to improve social indicators and reduce the fiscal deficit of Pakistan, apart from creating measures to increase the social spending. The arrangement did not have any measures that would reduce poverty in the country as the name suggests and focussed entirely on establishing conditions for an increased sustainable economic growth. Interestingly, it was one of the few IMF arrangements where Pakistan was able to meet all conditions satisfactorily. (“Fasih Uddin, “Pakistan under IMF shadow”, Islamabad Institute of Policy Studies, 2008)
In the 71 years of relationship between the two, the number of critics and opponents of the IMF have only gone up. Leaving aside the technicalities of whether IMF loans have been a boon or bane for Pakistan and its people, there are five reasons behind the an innate hatred towards IMF and its proposed arrangements in Pakistan.
Five reasons behind Pakistan's anti-IMF sentiment
First, scepticism of foreign influence. There is a popular belief among Pakistanis that the IMF and World Bank do not want to see a financially stable Pakistan and are deliberately forcing upon measures which encourages unemployment, price hike and poverty. Some Islamists in Pakistan also claim that there is a Zionist-American alliance which works against Pakistani interest and are responsible for all the problems in their country including a bad economy. Pakistan has played the role of being the frontline state in the super-power campaigns in past which explains the suspicion of Pakistani people for West’s real intentions. Many in Pakistan also see it as a tool of US foreign policy which tends to favour those countries that act in US’s national interest rather than their own. (Khurram Hussain, “Pakistan and IMF: The ties that bind,” Dawn, 11 January 2015)
Second, economic conditions post IMF bailouts. The austerity measures espoused by the respective governments in Pakistan after receiving funds from the IMF has a history of creating severe economic conditions for the common people of Pakistan. There has been an incessant demand from the IMF for Pakistan to widen its tax base and slash the government spending in order to reduce the fiscal deficit of the country. History suggests that no good has ever come from IMF measures, in fact situation worsens post the IMF reforms. According to a report by Independent Evaluation Office’s report on ‘Evaluation of prolonged Users of IMF resources’, Pakistan under IMF arrangements in the ten-year period from 1988 to 1999 experienced a 2 percent drop in its overall GDP, 7 percent dip in export growth and 10 percent increase in poverty in comparison to the previous decade. Some unpopular measures such as mandating customers to provide an identity proof while buying goods of more than 50,000 rupees, a decision taken by Khan government in 2019 with an aim to catch the tax evaders, has received condemnation from the trading community who see it as an IMF directive to boost tax revenues. (Asad Hashim, “Pakistan traders strike over steps to boost taxes as urged by IMF,” Al Jazeera, 29 October 2019)
Third, maintaining Status Quo in Pakistan. Pakistan could be seen as a classic example of having what some economists might call “The Dutch Disease”. The successive governments in Pakistan are used to getting funds from the IMF whenever the economy undergoes through a crisis. It seems the civilian as well as the military governments have absolutely no desire for change and are reluctant to introduce economic reforms in the country as it has the possibility of making them highly unpopular in the eyes of common Pakistani. The hatred towards IMF in a common Pakistani evolves from the fact that the establishment in Pakistan resorts to easy money from IMF which they are never able to pay back and therefore, remain indebted forever.
Fourth, opposition’s narrative against the IMF. The successive Opposition parties in Pakistan have formed a narrative against the IMF by blaming it for issues like rising unemployment, high energy tariffs and poverty. Opposition Parties in the present and past have criticized the Government for turning to IMF to rescue country’s economy. In February 2021, the JUI-F held rally against the present Khan government, alleging it for hiking electricity and gas rates on orders from the IMF. (“JUI -F holds rally in Bannu against inflation, joblessness,” Dawn, 28 Feburary 2021) The JI too, has criticized the PTI and previous governments for subjugating the nation to IMF just to maintain the extravagances of the state and bureaucracy.(“JI blames government for enslaving nation to IMF,” The News, 1 February 2021) Imran Khan himself, while he was in opposition, promised that he would never turn to IMF if he manages to come to power in future.
Fifth, religious reasons. There is historical aversion towards foreign system of banking among Muslims of the subcontinent. In undivided India also, there was an absence of Muslims in the banking system, one of the major reasons of that being Islam prohibits usury. Often the IMF is been picturised in Pakistan as a medieval time moneylender that exploits the deprived individuals by engulfing them in a debt trap from which the latter fails to come out.
In conclusion, for this hatred to come down, there is nothing more that IMF can do for Pakistan. Instead, Pakistan itself has to make serious efforts in stipulating an environment that would promote the growth in overseas sales and further expand its export base. In addition to that it also has to make some solemn reforms in its institutional architecture which would discourage the norm of abrupt decision-making at higher levels just to favour or punish someone.
About the author
Abhiruchi Chowdhury is enrolled with the NIAS certificate course on Contemporary Pakistan. He is also pursuing Masters in South Asian Studies from Pondicherry University. He is interested in exploring the Geo-politics and contemporary political happenings in West Asia.