The economy of Pakistan is the 27th largest in the world in terms of purchasing power parity (PPP), and 44th largest in terms of nominal GDP. However as Pakistan has a population of over 183 million (the worlds 6th-largest), GDP per capita is low: the nations 2012 PPP-adjusted GDP per capita of approximately US$2900 ranked 135th, 141st, or 147th in the world according to the International Monetary Fund, World Bank, and US Central Intelligence Agency respectively Pakistan is an active member of the IMF. In last decade, loans worth approximately $12.6 billion have been granted to Pakistan. Each loan that IMF grants has its own specific purpose and conditions. Unlike World Bank, IMF focuses on funding a complete program rather than a single project. In our report we will be focusing on the conditionality imposed by IMF and its subsequent affect on the economic policies of Pakistan when granting loans. These conditions serve two purposes: 1. To serve the original purpose of taking the loan; to solve balance of payment problems and stabilize the economy etc 2. To provide sufficient indication through ‘IMF influenced’ economic policies where by which the country proves its overall capability to repay the loan. The report will then emphasize on following loans granted by IMF to Pakistan in the past decade (2000- 2010); 1. December, 2001 – Poverty Reduction and Growth Facilitate credit - $1.3 billion. 2. November, 2008 – Standby arrangement – eventually increased to $11.3 billion. The International Monetary Fund (IMF) has approved a $6.7bn (£4.3bn) loan for Pakistan amid a continuing economic crisis in the country. The loan will be paid out over three years, beginning with the release of $540m, but comes with strings attached. The government must enact reforms to increase growth, bring down the budget deficit and improve the rate of tax collection. Pakistan already owes the IMF nearly $5bn after earlier loans.It last received an IMF bailout six years ago, but the government then in power failed to push through the necessary reforms. The economy has grown by an average of just 3% a year since then - too slow to support its rapidly growing population. Meanwhile the budget deficit has stayed high, foreign cash reserves have dwindled and taxes bring in just 10% of GDP - one of the lowest proportions in the world. In 2008, Pakistan agreed to an $11.3bn loan from the IMF to avert a balance of payments crisis. It received $7.6bn but failed to get the remaining $3.7bn because of its slippages in meeting the performance criteria. That led to the suspension of the programme in May 2010. The programme was extended in December 2010 for nine months, but disbursements were not resumed because of the country’s failure to take fiscal measures as demanded by the IMF. Ironically, Pakistan has availed itself of the new $6.6bn loan to repay the old loan to the IMF of which about half – some $4bn – is outstanding. In Pakistan, a country of 180 million people, only around 250,000 people pay income tax and agriculture, which still accounts for 50 percent of the economy, is largely exempt. The country’s previous experience with the IMF was not been a good one. Its entry into the IMF programme in 2008 did not revive economic growth but instead only increased the country’s foreign-debt pile. The programme caused a significant economic slowdown and the government at the time faced a major challenge in managing a slowing economy. Pakistan’s economy has grown 3 per cent on average during the past five years, but it would have required 7 per cent growth to lift the country out of poverty and fully absorb the growing labour force. The economy has grown by an average of just 3% a year since then - too slow to support its rapidly growing population. Meanwhile the budget deficit has stayed high, foreign cash reserves have dwindled and taxes bring in just 10% of GDP - one of the lowest proportions in the world. Under the new plans, the deficit must fall from around 9% of GDP last year to 3.5-4% in three years, while tax collection must be improved. However, it is good to know that a recent IMF study confirms emerging markets and developing economies were performing better than the advanced economies as most of their inflation is at single digit. These statistics along with a hope of better tax collection strategies in the near future, tend to soothe the Pakistan IMF’s repayments level to some extent. Along with economic growth and decline in the poverty ratio, there are also hopes that reforms to the energy sector will help prevent frequent power cuts.
Posted on: Mon, 11 Nov 2013 12:24:56 +0000
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