IMF and Pakistans current economic crisis

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A Pakistan economic system is picking up: International monetary fund

A WASHINGTON: Pakistan ‘s economic growing has started retrieving despite security and energy challenges and the state met about all marks under the International Monetary Fund plan, the planetary fiscal establishment said Tuesday.

“ Pakistan ‘s plan is come oning good, ” the Fund said in a statement following “ constructive treatments ” with Pakistani functionaries concentrating on Pakistan ‘s recent economic public presentation, the mentality for the remainder of the financial twelvemonth.

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Adnan Mazarei, who met with the Pakistani functionaries in Dubai over the past hebdomad to originate treatments on the 4th reappraisal under Pakistan ‘s Stand-By Arrangement ( SBA ) , noted that Islamabad observed all quantitative public presentation standards for end-December 2009, except for the budget shortage mark, which was exceeded by a little border.

Listing positive tendencies Pakistan registered in recent months, the Fund said the exchange rate has remained stable at Rs. 84-85 per U.S. dollar and the international militias place has strengthened ( the banking system ‘s gross foreign exchange militias, including the State Bank and commercial Bankss, reached US $ 14.3 billion in mid-February, of this entire the State Bank held US $ 10.5 billion ) .

The early marks of recovery in some sectors and the improved external place are promoting, although there are hazards and challenges to Pakistan ‘s economic plan.

“ Economic growing in Pakistan is get downing to retrieve ; large-scale fabrication end product has started to increase, the betterment in the planetary economic system has helped fabricating exports, and private sector recognition growing has picked up slightly as concerns rebuild their on the job capital. ”

The IMF ‘s bundle for Pakistan – approved in November 2008-has been extended to $ 11.3 billion.

Looking in front, the IMF statement said, a recommencement of higher growing is needed to raise life criterions and will necessitate betterments in the concern clime to excite higher investing by local and foreign investors.

The fiscal establishment besides noted that the “ resoluteness of the Pakistani governments to implement their stabilisation and reform plan is a cardinal factor in intensifying macroeconomic stabilisation, despite the hazards associated with internal security and uncertainness as to the gait of planetary economic recovery. ”

Stressing the demand for stepped up givers support for the cardinal anti-terror spouse of the international communityy, the Fund said early expense of giver funding remains important to back up Pakistan ‘s stabilisation and reform attempts and puting the footing for a high and sustainable growing.

The IMF mission staff will fix a study on the 4th reappraisal under Pakistan ‘s SBA that is scheduled for consideration by the IMF Executive Board in late March.

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Pakistan and the IMF: A Relation of Trust

An Article

By Henri Ghesquiere, Senior Resident Representative in Pakistan

Reproduced with permission of Business Recorder

September 23, 2003

One month from now, the 24 Executive Directors of the International Monetary Fund, who represent 184 states, will probably run into to reexamine Pakistan ‘s recent economic advancement. Opportunities are they will O.K. a expense of about $ 240 million — one more milepost in Pakistan ‘s economic resurgence which began four old ages ago. The blessing will be a farther nod of encouragement for the Government to prevail with its scheme of sustained high economic growing and poorness decrease.

Yet, in Pakistan misgiving of the IMF ‘s purposes abounds. Its three initials evoke economic hurting. Many consider the Fund uncaring. They look with disbelief when I assert that the Fund has merely one end in Pakistan: to assist the state accomplish its full economic potency.

When Pakistan ‘s Government asked fiscal support from the Fund about four old ages ago, the state stood at the threshold of default on its foreign debt. Barely any international giver or creditor, private or public, was prepared to supply funding unless the IMF led the manner by seting its money in Pakistan. When that money came imports kept fluxing into the state, debaring a crisis of perchance monolithic bankruptcy and layoffs and even more grinding poorness.

Did Pakistan stop up in the clasps of a greedy loaner? Barely. The most expensive debt of Pakistan to the IMF carries an involvement rate of less than 2.5 per centum per twelvemonth and the majority is lent at 0.5 per centum, good below the rate of return which domestic bondholders and investors in nest eggs certifications demand from their Government. The money that the IMF lends has been entrusted to it by the authoritiess of its member states and the Fund has a fiducial duty toward their taxpayers. The low involvement rate is meant to assist the Government of a borrowing state that courageously confronts its deeper economic jobs. The economic policy steps that are a status for IMF expenses aim to beef up that economic system — for the benefit of its citizens — and to let refund to the IMF and do the money available to other member states in impermanent troubles.

Unsustainable economic policies, non sudden bad luck, brought Pakistan to the IMF. Throughout the 1980s and `90s, economic policies had a fatal defect: public outgos, frequently misguided, exceeded gross collected by a broad border. Persistently big budget shortages trapped Pakistan into a gyrating public debt which by 2000 exceeded the economic system ‘s entire one-year production. The turning load of paying involvement on this debt compressed critical spendings for wellness and instruction and left the substructure crumbling.

The authorities that assumed power in October 1999 honestly took stock of what ailed the economic system. It designed a consistent economic scheme, in which financial subject, external debt alleviation, reform of establishments to ease private economic activity, and enhanced outgo for better quality instruction and wellness all reciprocally reinforce each other toward the ends of sustained high economic growing and poorness decrease. Subsequent interaction with stakeholders put accent on the function of adult females, employment creative activity, and the environment. Key Pakistani personalities, get downing with President Musharraf, articulate this scheme with the strong belief of home-grown ownership, non IMF infliction.

The sustained execution of this scheme offers the best hope for Pakistan to raise the criterion of life of its people durably. Many now take the macro-economic stableness and the renewed assurance in the value of the rupee for granted without crediting the financial subject that made the turnaround possible. Support from bilateral givers or the return flow of capital in the signifier of worker remittals would non hold reached their current magnitudes without policy continuity by the Government.

IMF staff are sometimes considered impatient, unaware of the clip it takes to construct consensus for transforming economic establishments in decay or to alter deep-seated mentalities that obstruct good administration. Yet, cunctation in implementing reform policies delays their benefits. The consequence may be a sustained economic rate of growing of merely 5 per centum alternatively of 6 per centum or higher — a major reverse in personal wellbeing over clip.

In bend, the people of Pakistan are impatient, intelligibly so, to see an terminal to abysmal poorness. Middle-class income earners strive to run into the aspirations of their households. The scheme being followed is powerful and will accomplish its ends but non outright. Private investors will perpetrate resources and make employment chances when they are confident that the scheme will digest. Doubling the output per acre in agribusiness and authorising the hapless by giving them the accomplishments to take part in productive activities will take clip. The procedure should be shortened by heightening the effectivity of public service bringing in wellness and instruction through better motivated public retainers and focused societal safety transportations.

By late 2004 Pakistan ‘s three-year adoption agreement with the IMF will be completed. The Government has announced its determination non to seek farther funding from the IMF thereafter. Pakistan will therefore fall in the 70 per centum of the member states with whom the IMF soon has no loaning relationship. The Fund respects that determination. And there are good evidences for it. On current chances, Pakistan will go on to keep high official foreign militias and can number on deriving the assurance of international capital markets. Pakistan has been a drawn-out user of Fund funding and the IMF has neither the authorization nor the resources for indefinite development support.

The IMF will stay stanchly committed to assist Pakistan accomplish its end of greater prosperity for all its citizens. One avenue is to keep an intensive economic policy duologue. Other proposals include sharing the Fund ‘s expertness for beef uping the soundness of fiscal establishments to farther lessen Pakistan ‘s exposure to external dazes.

Meanwhile, the staying twelvemonth under the Poverty Reduction and Growth Facility ( PRGF ) offers the chance and challenge to consolidate the economic advancement achieved to day of the month and to press frontward with determining economic establishments for the improvement of the Pakistani people. On juncture, public sentiment shapers in Pakistan exhort their authorities functionaries to negociate difficult with the IMF and overreach its staff. I can non stamp down a smiling. Fund staff and their opposite numbers are non purchasing or selling rugs, but larning together how best to accomplish the common end. At this tabular array, we sit on the same side.

Henri Ghesquiere is the IMF ‘s senior occupant representative in Pakistan. He shared these positions as portion of an on-going duologue with Pakistani society.


Public Affairs: 202-623-7300 – Facsimile: 202-623-6278

Media Relationss: 202-623-7100 – Facsimile: 202-623-6772

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IMF & A ; Pakistan ‘s current economic crisis

Ahmed Shayan

The International Monetary Fund ( IMF ) was created in July 1944, originally with 45 members, with a end to brace exchange rates and help the Reconstruction of the universe ‘s international payment system. States contributed to a pool which could be borrowed from, on a impermanent footing, by states with payment instabilities.

Over the decennaries, the IMF has funded Pakistan clip and once more, which has gripped Pakistan in a barbarous rhythm of loans, involvement, and debt refund. In 2008, Pakistan struggled to avoid seeking IMF ‘s aid when the state was on the brink of default on its autonomous debt of about $ 4 billion. The Pakistani authorities was loath to accept this aid for several grounds. First, there is a history of hapless dealingss between Pakistan and the IMF. Second, dealingss between the Pakistani authorities and the IMF may hold been farther strained by studies that IMF applied force per unit area on the World Bank to call off $ 300 million in assistance to Pakistan. Third, the authorities was concerned that the conditions IMF would enforce on the state would be black for Pakistan, both economically and politically.

However, when all other avenues failed, the Pakistani authorities approached the IMF to bail out the state in November 2008. The authorities reached an understanding with the IMF for $ 7.6 billion to be given as loans over the following 23 months. The refund of this loan is to get down in 2011 and will go on until 2015.

IMF will be supervising Pakistan ‘s economic public presentation to do certain that the state is on the right path. The public presentation standards to be used include the State Bank of Pakistan ‘s ( SBP ) cyberspace retentions of foreign and domestic assets, the authorities ‘s financial shortage, SBP ‘s retentions of authorities debt, every bit good as an IMF appraisal of Pakistan ‘s accomplishment of structural economic alterations ( such as revenue enhancement reform, pecuniary and exchange rate policies, and reform of the state ‘s societal safety cyberspace ) . Failure to run into the public presentation standard may ensue in the withholding of IMF aid.

Furthermore, the IMF requires Pakistan to implement a assortment of alterations in its economic policy in order to have aid. The IMF conditions include alterations in financial policy, pecuniary policy, and exchange rate policy. It besides requires an enlargement of Pakistan ‘s societal safety cyberspace to extenuate some of the awaited inauspicious effects of the other conditions.

The conditions imposed by the IMF are rather rough, and some may even dispute the sovereignty of Pakistan. However, less than three months after finalizing its understanding, Pakistan returned to the IMF, bespeaking an extra $ 4.5 billion in aid. In add-on, Pakistan asked the IMF to revise some of the public presentation ends. At the same clip Pakistan was nearing the IMF, President Zardari traveled to China to further better ties between the two states and to seek fiscal support. It was evident that the November 2008 understanding and the $ 3.1 billion in support from other beginnings were non sufficient to forestall the crisis.

By March 2009, economic information from Pakistan indicated that the combined effects of the planetary economic recession and the IMF conditions were decelerating Pakistan ‘s economic system more rapidly than had been projected by the IMF, doing it less likely that Pakistan would be able to run into the needed public presentation standards. After audience, Pakistan and the IMF lowered the mark GDP growing rate for financial twelvemonth 2008/2009 from 3.4 per cent to 2.5 per cent.

Assuming Pakistan is able to procure the extra capital aid it needs, it will non stop the state ‘s economic jobs. Pakistan ‘s recent period of economic growing was based on a combination of export enlargement and inward foreign direct investing ( FDI ) . Pakistan was able to finance its modest trade and capital history shortages in portion due to the inward FDI and in portion due to remittals from abroad Pakistanis.

In 2007 and 2008, a rise in fuel and nutrient monetary values, combined with political instability led to a rapid rise in rising prices, spike in the trade and current history shortages, and devaluation of the Pakistani rupee. Although planetary fuel and nutrient monetary values are on the worsening side, the US fiscal crisis has precipitated a perchance extended planetary recession. For Pakistan, planetary recession will probably cut down demand for its exports, hinder the FDI influxs and abroad remittals. Official estimations for foreign direct investing in 2009 reportedly show a diminution of over 32 % per cent when compared to last twelvemonth.

Sing all the above mentioned facts, the Pakistani authorities has to maintain a rigorous cheque on its economic system, because Pakistan ‘s sovereignty and being is at a high interest.

Writer is a pupil

at SZABIST university.

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Fasih Uddin. Pakistan under IMF Shadow. Capital of pakistan: Institute of Policy Studies, 2008. Paperback. 128 pages. Price non given.

Pakistan like many other developing states has been sing both fiscal and financial instability. This is chiefly because it has miserably failed to bring forth sufficient resources required for its economic development. Consequently, to supplement its meager domestic resources, it has been largely seeking foreign aid. At times when ‘friends of Pakistan ‘ , for their ain subterranean motivations, such as support for the cold war and war on panic, have helped Pakistan through undertaking and programme assistance, it has kept endeavoring to travel towards a higher way of economic growing despite hapless administration and misdirection of the economic system by its contrivers and economic directors. At other times, when the ‘friends ‘ have been slow to coming frontward, Pakistan has looked for fiscal assistance from international fiscal establishments including the International Monetary Fund ( IMF ) and the World Bank. These establishments ever attach rigorous conditions to fiscal aid. As a consequence, these establishments remain ( implicitly ) instrumental in the preparation of short- to medium-term economic policies of Pakistan, with results that are ever considered as sub-optimal.

This concise book focuses on the Pakistan-IMF dealingss in a historical position and skillfully provides an analysis of issues that have ever dominated these dealingss.

The writer examines the irresistible impulses that have often led to fall backing to IMF agreements — the fortunes that have led the state to fall back to IMF once more and once more, with increasing the grades of IMF engagement in Pakistan ‘s economic direction and policy-making.

The first chapter of the book is written by Khurshid Ahmed. This chapter critically reviews the function of the IMF in its dealingss with developing states in general and with Pakistan in peculiar. The remainder of the book is divided into five chapters.

The cardinal statement is that the IMF attack has non been based on economic and fiscal prudence ; it is frequently influenced to a great extent by the political docket of the advanced states. Pakistan ‘s necessities have forced it to be a portion of this planetary docket.

On the inquiry of the influence of the IMF on the policies of aid-receiving states, it is by and large observed that the IMF supports a state at the petition of the Member State which selects the particulars of the programme, whereas Pakistan ‘s official base is that it ever follows a ‘home grown ‘ docket. The IMF governments claim that policy alterations designed are sufficient to get the better of the balance-of-payments job and financial instabilities, and that these do non do ineluctable injury to the state.

The book justly points out that all the IMF programmes assume that poorness decrease and societal development will automatically follow the acceptance of sound financial policies. It has ne’er happened! In fact, it is well-documented that the IMF programmes do non straight address the issues of employment and poorness but act upon them merely through the second-order effects. Had the IMF programmes been successful, the writer maintains, Pakistan would ne’er hold reverted to the Fund for assistance. He convincingly argues that the job lies non merely with the IMF programme but with the execution of it by the Government of Pakistan. The authorities frequently complies with some conditions and ignores others, utilizing the purchase of international political environment and the IMF to force through merely those policies that benefits domestic Elites and anterooms and delight the creditors.

The book points out that the decennary of the 1990s was the epoch of institutional decay in Pakistan. This was manifested through increased political tampering in the direction of public endeavors and establishments. The IMF programmes during the period were conspicuously soundless and did non force for a stronger accent on institutional and regulative reforms. Attempts to run into financial shortage marks led to the frequent acceptance of ad hoc revenue enhancement accommodations and outgo cuts that frequently negatively affected the societal sector budget, with desperate effects for the hapless categories.

The writer testifies that the IMF force per unit area resulted in planing of such programmes that promised more than could be delivered, downplayed the hazards, and disregarded focal point on existent issues. Based on such conditions, he concludes that economic direction in Pakistan continues to stay under the ‘IMF shadow ‘ .

In a nutshell, this book successfully evaluates of import events in Pakistan ‘s dealingss with the IMF. It reminds us of different episodes, prescriptions, and results of this relationship. It justly warns that if the class of domestic policies and planning does non alter, Pakistan will maintain on returning to the IMF. Using a simple methodological analysis, the writer besides provides the benchmarks of financial shortage, balance of payments, and stock of public debt, along with critical success factors that need to be adopted to avoid traveling once more to the IMF for aid. Nevertheless, disregarding all this, Pakistan has gone back to the IMF!





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Macroeconomic Stability of Pakistan: The Role of the IMF and World Bank ( 1997-2003 )

Last updated: July 30, 2008


Faisal Cheema

Cantonment Executive Officer, Rawalpindi Cantonment Board

Civil Services of Pakistan

ACDIS Occasional Paper series

May 2004

Full text [ PDF ]


As of 2004, Pakistan ‘s economic system had reached a phase where it enjoyed autonomy in nutrient, an unprecedented stock of foreign exchange militias, worsening budget shortages, increasing industrial production, and was nearing an overall growing of over 5 per centum per annum. The economic system had achieved cardinal macroeconomic stableness amid general betterment in economic indexs. On the other manus, Pakistan was still faced with challenges like hiking investing, extinguishing public sector shortages, making new substructure, and spread outing societal sector development. The undertakings of poorness relief and employment coevals remained formidable, necessitating both direct and indirect enterprises. While macroeconomic stableness had been achieved, the economic system was still at the take-off phase, with much room for betterment.

This paper offers an scrutiny of Pakistan ‘s macroeconomic indexs, its relationship to the IMF, and the future chances of Pakistan ‘s economic system. The piece is divided into several subdivisions. Separate One trades with selected macroeconomic indexs of the economic system and their public presentation in the selected period. Separate Two discusses the function of the IMF and World Bank in the economic resurgence of Pakistan. In Part Three, an effort is made to pull a future skyline of the state. In the last subdivision, the writer presents decisions.

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Capable: Foot: The IMF in Pakistan

The IMF in Pakistan

By Farhan Bokhari, The Financial Times

Thursday 2 September 1999

Pakistan: IMF medical specialty may non work Farhan Bokhari studies on concerns about really low economic assurance, wavering reform and political uncertainness

The IMF ‘s seal of blessing for Pakistan, expected to be granted in a missive of purpose in the following few yearss, is the latest in a series of international deliverance steps to raise the state ‘s beat-up economic assurance.

The missive would predate a determination by the Fund ‘s executive board later this month which should urge expense of a $ 280m tranche from a $ 1.56bn loan agreed last twelvemonth.

But many analysts are doubting an IMF-led deliverance can interpret into an economic recovery. Ishaq Dar, finance curate, who predicts an upturn in the months in front, is faced with critics reasoning the IMF medical specialty is merely non plenty to resuscitate economic growing, contract the international trade shortage or increase equity and direct investing.

Mr Dar has late announced fresh inducements for exporters and successfully concluded debt restructuring with western loaners. But even before he announced his one-year trade policy for this fiscal twelvemonth ( July-June ) , critics were speedy to reason that the authorities ‘s economic marks were merely excessively ambitious.

In one mark that added to the agnosticism, Pakistan ‘s international trade shortage of more than $ 200m in July was twice that in the same month a twelvemonth ago. Critics besides say that the mark of $ 800m for this twelvemonth ‘s trade shortage may already be beyond range.

The spread between Mr Dar ‘s outlooks and independent appraisals is mostly the effect of beat-up assurance, wavering reforms and, above all, political uncertainness in the radioactive dust from about two months of contending between Pakistani and Indian military personnels along the disputed boundary line in Kashmir.

Critics say the IMF ‘s following tranche would non needfully intend smooth sailing for Pakistan in its dealingss with the Fund. Many reforms urged by the Fund, including the recent infliction of a 15 per cent general gross revenues revenue enhancement ( GST ) on imported and processed nutrient, gas and crude oil, have yet to demo that they can give more in revenue enhancement grosss. The gross aggregation system still suffers from widespread corruptness and inefficiency.

The resistance hopes to construct on bargainers ‘ sadness with the gross revenues revenue enhancement in rallying support for a protest work stoppage on Saturday.

The IMF ‘s loan is critical to keep together subsequent understandings such as a $ 3.3bn debt restructuring agreed with the Paris Club of loaners and a $ 512m trade installation rescheduled with foreign Bankss.

The trade understanding has set a mark of $ 9bn for exports, an 18 per cent rise over last twelvemonth. Imports are projected to lift about 5 per cent to $ 9.8bn, while the projection for the trade shortage of $ 800m is about half of last twelvemonth ‘s shortage of $ 1.57bn. Additionally, Mr Dar hopes overall economic growing will retrieve aggressively, lifting twice every bit fast as the 3.1 per cent addition in gross domestic merchandise last twelvemonth, which hardly kept up with the state ‘s one-year population growing rate.

“ The authorities has done everything possible. We have provided the contributing environment, ” says Mr Dar, while appealing to business communities to back up new investings.

He expects a strong recovery in the agribusiness sector to give big excesss of exportable harvests such as cotton and rice, a recovery in large-scale fabrication and a world-wide economic recovery to raise Pakistani exports.

The trade policy has included ambitious steps such as taking import responsibilities on polyester basic fiber to profit domestic fabric makers. Other inducements include a 1 per cent income revenue enhancement on consultancy and technology services which earn foreign exchange, and a decrease to 0.5 per cent in the 1 per cent revenue enhancement on exports of rice, fish, cherished and semi-precious rocks.

“ Exports and new investings are the cardinal to your economic mentality. Without a recovery in those two, the economic system is improbable to travel, ” says Salman Shah, a respected economic expert and former president of the denationalization committee. “ Assurance has been severely battered and there is a go oning radioactive dust. ”

Skeptics warn that the mentality for foreign investing may non be different from last twelvemonth. Then, foreign direct investing of $ 296m fell from $ 436m the twelvemonth earlier, while portfolio investing of merely $ 4.7m was well below the $ 203.8m of a twelvemonth earlier.

The grounds for the pessimism, above all, include the radioactive dust from Pakistan ‘s controversial intervention of foreign investors in the 19 private power undertakings agreed five old ages ago.

The authorities has merely relented in the past few months from its claims of corruptness in those undertakings, under force per unit area from the World Bank. But business communities say that new understandings on future duties for all of the power undertakings have yet to be concluded.

Businessmens besides say that the determination to stop dead about $ 11bn deposited in onshore bank histories last twelvemonth, to forestall a tally on Bankss, has damaged assurance. The uncertainness has besides harmed domestic assurance.

In add-on to economic factors, Pakistan ‘s recent clang with India over Kashmir has thrown in uncertainty its dealingss with the IMF. US and Pakistani functionaries denied studies last month that the Clinton disposal had considered barricading the following IMF tranche if Pakistan refused to retreat combatants from Indian controlled countries.

However, bankers in Karachi say that the mere suggestion of the linkage between IMF loaning and its usage to advance strategic aims is likely to hold a damaging consequence on the state ‘s image. “ During future crises investors would maintain an oculus out for a nexus between strategic ends and IMF financess, ” says one.

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