Pakistan
joined the IMF in July 1950 and for the first time the country approached it in
1958 for a loan of Special Drawing Rights amounting to 25 million worth nearly
US $24.80 million. It was requested to be sanctioned under the Stand-by
Arrangement (SBA) in December 1958, meant to provide financial support to
overcome macroeconomic distortions, if being faced by the member countries of
mainly the developing world.
It was, however, cancelled even prior to its expiration date on the ground that
the amount had remained lying completely idle for long. The whole amount, therefore, went off
unutilised. The reasons being the political upheavals during the period and
also because of inflow of substantial economic and military aid from the US
soon after the dictatorial regime came into power in October 1958.
During the 60s, two more stand-by arrangements, each of them of one year
duration, were approved in 1965 and 68, collectively amounting to 148.0 SDRs
which could be utilised only to the extent of 71.0 percent and the remaining amount was lapsed due to slow
utilisation.
Although the whole amount of the loan was not utilised but it was productively
deployed for achieving a higher level of economic development. These IMF loans,
along with other factors such as funding by the World Bank to mega projects for
water resource management and hydro power generation, later on resulted in
achieving an impressive growth rate during the period.
At a later stage in the 70s, four loans were sanctioned to Pakistan under the
similar nature of Stand-by Arrangements worth SDRs 330 million in aggregate
which were utilised to the extent of about 95 percent of the sanctioned amount.
It is creditable that the then economic managers were successful in meeting the
targets of their utilisation.
The loan programmes by IMF till such time were not characterised by any
significant variations in terms of conditionalities attached to the loaning
which provided the opportunity to the policy makers for framing the economic
policies independently suiting the requirements of the economy. It facilitated,
to a great extent, the successful implementation of the programmes.
In the 80s, however, a drastic change in terms and conditions i.e.,
conditionalities of loaning programmes took place for Pakistan as also in case
for other developing countries. The conditionalities, in their broader sense,
embrace both the design of IMF-supported programmes i.e., underlying
macro-economic and structural policies, and the specific tools used to watch
the progress of the programme.
These used to be imposed on the client countries in the form of strict set of
policy reforms which included a close monitoring of the economy concerned which
continued to be stricter with the passage of time and also according to its
experience about the economic performance of the countries in response to the
loan programme. These paved the way for the IMF involvement in policy framing
of these countries.
During the period prior to the return of democratic system of government in
1988, two long-term loans under the Extended Fund Facility (EFF), amounting to
a total sum of SDR 2.187 billion, were approved first in November 1980 and
subsequently in December 1981, covering approximately a period of three years.
The size of these loans was more than four times the entire amount lent through
seven Stand-By packages during 1958-80. It is worth noting that the IMF was
once again liberal in sanctioning a large amount of loan during the military
regime.
Since
this period, there began an increased role of IMF as a source of lending to
Pakistan and also in terms of its influence in national economic policy making.
IMF loaning, therefore, became a subject of intense debate in the country which
got further intensified by the failure of such packages in solving the economic
health of the country.
The strict conditions imposed by the IMF attached to its loan packages such as
devaluation of currency and de-linking rupee from dollar and replacing it by
the managed float system, liberalisation of imports, restrain on government
spending and increased role of private sector were met except implementation of
complete abolition of subsidies.
However, the government could utilise only a sum of SDR worth 1.079 against the
sanctioned amount loan which constituted only 49.33 percent of the total amount
of approved loans despite at the cost of meeting most of the tough
conditionalities such as massive devaluation and floating rate of exchange.
Its reason may be attributed to inefficient economic management and also on
account of an inflow of financial aid in the country for economic and defense
purposes, again during the period of military regime. Despite a heavy cost to
the economy caused by devaluation and linking the value of rupee based on
managed float system, the loans could be utilised only partially.
Since 1988 and prior to the ongoing Stand-By Arrangement, eleven loan
arrangements, amounting to a total sum of SDR 5.21 billion equivalent to nearly
US $ 5.80 billion were made under various programmes such as Standby Arrangement
(SBA), Poverty Reduction and Growth Facility (PRGF) and Extended Structural
Adjustment Programmes (ESAP).
Since 1988 till the end of 90s, only 62.41 percent of the total amount of loans
approved by IMF was utilised. Before the Eighties the under utilisation of the
loans was either on account of inefficient economic management of various
governments or due to its redundancy
after the inflow of economic aid during the dictatorial regime, while in the
subsequent years, it was largely because of their failure to act upon the
strict conditionalities attached to the loaning programmes.
During the post 2000 period, IMF entertained the government’s first request for
the Stand-By credit arrangement amounting to $ 596 million equivalent to SDR
465 million in November 2000. Later on, the government was sanctioned a loan of
$ 1.3 billion worth SDR 1.03 billion in December 2001 on its request under the
Poverty Reduction Growth Facility, covering a period of three years.
According to State Bank, the government could successfully meet the performance
criteria as laid down by the IMF for both the programmes. Almost the whole
amount of $ 1.896 billion equivalent to SDR 1.495 billion was thus utilised
except the last trench amounting to US $ 252.60 million on the ground that it
was no longer needed.
These were followed by the approval of current 25-month Stand-By Arrangement
(SBA) Programme worth SDR 7.236 billion (US $ 11.3 billion) covering a period
of 25 months after being augmented on August 7, 2009 from an originally
approved 23 months programme, worth SDR 5.17 (US $ 7.6 billion) approved in
November, 2008 which is more than double the entire amount of loans sanctioned
by IMF to the country since 1958.
The programme package comprised a number of conditionalities in the form of
Structural Performance Criteria and Structural Benchmarks and it was to be
implemented by December 2010 through six installments (besides the amount
released with the approval of the loan) based on its satisfactory quarterly
performance reviews by IMF. The reviews were to examine the achievements of the
programme as per conditionalities which were framed with mutual consultation of
the government and IMF.
The conditionalities were designed as loan package signified under the broad
framework of its objectives, aiming at to “(i) restore financial stability
through tightening of fiscal and monetary policies to bring down inflation,
strengthen foreign currency reserves and develop confidence of local and
foreign investors; (ii) to protect the poor to preserve social stability
through a well targeted and adequately funded
social safety net; and (iii) raise the budgetary revenue through comprehensive tax reforms to enable
the significant increase in public investment and social spending required for
achieving sustainable growth.”
The programme remained suspended after the fourth review in June 2010 and the
release of fifth trench, since the government failed to achieve some of the key
structural performance as well as benchmark conditionalities. The remaining two
trenches amounting to US $ 3.4 billion (the last was scheduled to be released
in November 2010 were, therefore, withheld.
The government, despite taking some politically difficult reform measures,
could not meet some of the important conditionalities such as lowering down the
fiscal deficit to the desired level since there was a continuous breach of
fiscal deficit limits, implementation of reformed sales tax regime (Value
Addition Tax), withdrawal of the
subsidies, amendment in the banking legislation to enhance the effectiveness of
the State Bank of Pakistan and overcoming the problem of circular debt in the
power sector.
Lately in June, however, the IMF extended the programme till the end of
September, 2011 in response to the request of the government to give chance to
implement the remaining conditionalities.
On realisation that it may not be possible to implement these due to their
heavy political repercussions and also on account of its inability to rectify
those ills in the economy in the short run in the wake of some heavy macro
economic distortions in the economy to which
the conditionalities were meant to address. Non-preparedness and lack of
political support including that of the business community to introduce some
conditionalities such as VAT regime is also the reason of the failure of the
government to successfully implement them.
Another contributing factor in the failure of the government to comply with
some tough conditionalities was unprecedented floods of the last year experienced
by the country, which shattered the whole economy. The government, on finding
the rigid stance of IMF regarding the implementation of the key structural
reform conditionalities, abandoned the effort to avail the opportunity.
The programme, therefore, ended up by 30th. September, once again without
achieving some of the significant targets which are, no doubt, most essential
for the health of the economy. However, since the economy faced a great
economic set-back on account of unprecedented floods costing it heavily, it was
expected that the IMF should have adopted some lenient approach. However, the
country should take it as challenge as well as an opportunity to be dependent
only on home grown solutions and to live with domestic resources mobilisation
to protect its economic sovereignty.
|
