IMF's Assistance to Pakistan

International Monetary Fund (IMF) approved loan of $7.6billion to Pakistan out of which $3.1 billion were transferred to the State Bank of Pakistan to bolster the reserves. Unlike in past, Pakistan’s first option was to generate billion dollars ‘GRANT’ from Friends of Pakistan to avoid strict conditions from IMF. But, seeing a cold response from the circle, the government of Pakistan was forced to contact IMF to bailout the economy. Like an ordinary Pakistani, I was thinking about the existence of donor financial institutions such as The World Bank Group, International Monetary Fund (IMF), and Asian Development Bank (ADB). Instead to focus on the negatives of their existence and interference on country’s economical matters, I would ask the outcome if these institutions were not established. Who would give loan on consistent basis to POORLY managed countries? We need to take emotions out from the equation to come up with better rationale of our self generated problems. The country (Pakistan) has taken enormous loans from various groups but has spent minimum to what was required. Lack of accountability in past civilian governments and heavy spending by military administrations on defense, have created havoc like situation on country’s economy. Whenever, Pakistan needed any fund to support its ailing economy, IMF, World Bank or ADB were the institutions that helped Pakistan to meet a sustainable economic target but with their set of conditions. As a young promising economist, I’m well versed not to speak in favor of taking loans from these institutions. However, developing countries like Pakistan and the rest, where politicians spend one fourth of the loan on useful purpose and the rest becomes unseen on any major developments, requires strong surveillance. Therefore, I speak in support of IMF to give Pakistani government a warning signal to control un-necessary expenditures. IMF’s strong monitoring over Pakistan’s monetary supply is an unwanted gift yet a need of the hour. Having seeing failures twice in past civilian governments, IMF has taken this step after a thoughtful consideration. This reminds me of the famous phrase from one of my political science professor: “We cannot blame others for our own failures nor can challenge the notion of self interest”. Let’s look at the historical data on IMF’s assistance to Pakistan from 1988-2008:

currency in SDR

(Source: IMF databank)

The data starts from 1988. Pakistan started taking loan from IMF well before 1988 but not shown here. As a result, you'll see some total repayments even though no figures posted in first three columns.
IMF Currency 1SDR= $1.49413180 as of January 27th,2009. The SDR consist of market exchange rate of major currencies; U.S Dollar,Euro,Japanese Yen and Pound Sterling.
PRGF= Poverty Reduction Growth Fund
GRA= General Resource Account
For simplicity purpose, the column "total repayments" include interest payments on PRGF and charges on GRA but not mentioned in the table.

The above data indicates that ‘Musharraf’s military cum-technocrat’ government used IMF’s assistance more wisely than past civilian governments. Apart from political instability, we see only twice zero cash inflows in GRA (principal amount) category from 1988-1999. In 2002, Musharraf’s government stopped the flow of principal amount and in 2005 the government put the practice of taking loans from IMF into halt. The IMF’s General Resource Account (GRA) maintained zero borrowing for six years (2002-07) where as the poverty reduction growth fund (PRGF) hadn’t seen it for last four years. The PPP government managed the funds relatively better than PML-N in both the categories; GRA/PRGF.

Lastly, IMF is like a school of surgeons which has an expertise on default states management. The professionals running IMF specializes on pulling countries out from the collapsed state. To ignore their advice might create economic uncertainty and to follow their prescription will lead to an un-healthy yet a sustainable economy. The rest depends on politicians how to take their countries forward once they’re bailed out.

Pakistan under American Politics

Since, the Republicans have completed two terms (8 yrs) in the oval office, I thought to compare their policy impact on Pakistan’s economy and compare it with previous eight years of Democrats Clinton era. In addition, I also compared the South Asian region’s economy to see how it grew under both. Holding everything constant (ceteris paribus), I took Gross Domestic Product (GDP) growth rate as a core economic indicator to describe country’s economical health. There are other macro-economic indicators as well which are equally important in analyzing the economy, but, to avoid complexity, I kept it simple with just one variable. Note that I’m not favoring any political party nor seeking any association. Instead, this analysis is done purely on factual basis. In addition, it’s not necessary to judge the performance of any political party based on its foreign policy or on any other country’s performance. However, it’s one of the several factors which demand careful consideration in describing successes and failures.

Pakistan’s GDP Growth under Democrats era (1993-2000):

Pakistan’s GDP Growth under Republicans era (2001-2008):


South Asian region average growth under Democrats (1993-2000):


South Asian region average growth under Republicans (2001-2008):




The above data is taken from various resources such as World Bank, CIA world fact book, Asian Development Bank, IAEA, State Bank of Pakistan and etc. To make the argument interesting, let’s look at World’s GDP under both; republicans and democrats:



World’s GDP under Democrats (1993-2000):

World’s GDP under Republicans (2001-2008):

I’ll not allow myself to be the advocate of any party rather would welcome others comment to come up with better reasoning in supporting their association. In conclusion, be it Democrats or Republicans, every decision made by America has an impact on other countries. Every political move by these parties changes the economic cycle of other regions. Let’s hope the newly elected President Obama proves good for the developing economies.

President Obama- a 'brand' for the developing nations

President Obama became the first african american president in the history of The United States of America. What message it gives to the international community in particular the developing countries? In past, how many american presidents have sincerely helped developing nations to meet the economic challenges of the 21st century? What vested interests does america have on other geographies/economies? These are the questions that bothers each and every individual residing in third world countries.
America has always provided economic assistance to other nations. Be it in a form of aid, loan or whatsoever, she has given enough capital to the under-developed and the developing world to meet their demand. To question her sincerity is a different argument which should take an un-biased approach towards judgement. However, the question should be put on the heads of state of third world countries about their sincerity and actions. Unlike many U.S presidents, Obama will be seen as a totally new figure, who came from the minority but has the majority to back him. The contrast is similar for the developing countries representation with the developed world. Do we; the developing/underdeveloping nation, have one such figure who can raise his/her voice to the developed nation? If obama can meet all the challenges and resist the pressure from some strong political establishments at his home, can't we do something similar? Can't we dictate our own terms and conditions to do business? The answer is only 'YES' if we have been sincere with our community. Yes, it would have been possible if the funds provided to us were used in building country's infrastructure instead of making our own fortune. Yes, we could have done it if we had a system of checks and balance so that no one acts above the law and understand the problem faced by its citizens.

Lastly, I request all the developing countries to be at-least the follower of one man who through his courage and determination turned every odds into even. A person who said after winning the election "they say this day will never come". This person is none other than Barack Hussein Obama who will be remembered as the 'braveheart' of the 21st century. Let's be a follower if not a leader!

Capitalism-Yes or No?

With industrial nation's economy dwindling, what would be the fate of developing countries in the current scenario? Do we think the word 'Capitalism' needs re-engineering or shall we argue for a better economic model yet not seen by humans of our generation. This constant thought continuously strive in me with respect to developing countries association with developed nations. Markets have failed to adjust themselves as promised by the concept of free markets;however, with no better economic model lying in front of us, once again we are the beggers to accept harsh realities of Capitalism. It would be interesting to see the mixture of semi-controlled economy where the rights of free markets are limited to an extent that they do not earn incredibly high profits at the cost of other organization. But, how can you control the environment? Who control's the flow of information? We do not need government interference to dictate supply and demand practice nor we need any sort of monopoly. Can all this be achieved in a realistic environment? The search for the term 'best economic model' continues...