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.