New IMF Loan: What should it Mean for Pakistanis

“I am pleased to announce that IMF Board has approved 6th tranche of their programme for Pakistan”, tweeted Pakistan’s Federal Finance Minister, Shaukat Tarin, on 2 February 2022. For a stretched to limits economy with deteriorating growth rates and inflation, this news has been hailed as a gospel of glad tidings by the government. The tranche of $1 billion is part of an Extended Fund Facility (EFF) approved by the International Monetary Fund (IMF) in 2019 – aimed to help Pakistan fix its economy and recover from the impacts of the Covid-19 pandemic.

The government is in hot waters over bad governance and a debilitated economy and expects a breather from this tranche. IMF’s estimates state that if structural reforms are undertaken efficiently, this programme will correct the country’s economic course in the long run while expecting more inflation in the current fiscal year. For decades, Pakistan has availed such programmes while still struggling with its economy. If history is any guide, Pakistanis have reasons to be wary of this funds’ inflow.

Development assistance has been pivotal to global governance since World War II, when former colonies had to turn into new trading partners and needed economic and technological prowess to participate in international trade and garner political stability and peace in the aftermath. But, with a few success stories, development has mostly been a bluff on the fates of the underdeveloped nations. Samuel P. Huntington ascribed these failures to the American policymakers who believed that economic development would automatically cause stability without the need for sustained institutional development. This realisation was somewhat reflected in IMF’s Structural Adjustment Programs (SAPs), which compelled the borrower countries to undertake reforms to make their economies resilient for the international market and ensure democracy and human rights.

IMF’s estimates state that if structural reforms are undertaken efficiently, this programme will correct the country’s economic course in the long run while expecting more inflation in the current fiscal year.

But, the volatile democracies in the third world remained unable to preserve sustained reforms. It seemed natural that despots in the borrower countries, such as Pakistan, Iran, Uganda and Ethiopia, became warmest friends with the western leaders. These despots actually held power and time to implement development planning in their countries. The soft access to international finance further empowered them to subdue their political foes and remain in power for long periods of time without committing to any form of civil rights.

Under its first military dictator President General Ayub Khan, Pakistan experienced record annual GDP growth rates averaging over 5%, with rapid industrialisation and expansion in urban working classes. Similarly, Pakistan received its first SAP in the 1980s, under President General Zia-ul-Haq – the closest US’ cold war confidant in Pakistan. Due to US’ strategic dependency against the Soviets, Pakistan enjoyed the easiest access to international finance with a reduction in fiscal deficit and balance of payment deficit. Both periods also saw a systemic bullwhipping of human rights and political dissent. With the latest edition of direct military rule in Pakistan, President General Musharraf promised a new era of prosperity. The post 9/11 politics again made it easier for a dictatorship to access funds and bring political enemies to heel.

The current Pakistan Tehreek-e-Insaf (PTI) Federal Cabinet of Pakistan is rife with several un-elected members and Musharraf era ministers. With similar approaches to policymaking, the current regime has also earned notoriety over the crackdown on political rivals and detentions and harassment of journalists and activists, while Pakistan’s debt problems have worsened and inflation is skyrocketing.

The latest IMF tranche has come with primary conditions that are worrisome to many, in addition to its possible ripple effects on politics. For this round of loans, Pakistan had to introduce some major reforms in its central bank – the State Bank of Pakistan through a bill passed by the Parliament’s upper house with the majority of only one vote. The bill is focused on increasing the autonomy of the State Bank. Two alarming clauses of the bill are; (i) Recapitalisation through which the government will give the bank money if its revenue falls below zero, but the government cannot borrow from the bank; (ii) Quasi-fiscal decisions will not be taken on behalf of the government, and no federal or provincial accountability body will hold the bank liable.

Two major opposition parties have vowed to undo the bill when they come in power. These reforms are feared to drag the prime monetary body of the country farther from the elected representatives and carry through the apathetic technocratic approach of solving the socio-economic problems of around 220 million people. This is just the way development silences its targeted beneficiaries and help monopolise the hegemonic political systems. Therefore, we should fear that while another authoritarian regime is strengthened with the new money, the 6th tranche will complement the vast sociology of silences presided over by the international development assistance. Little do we know which IMF program will finally, as Pakistani leaders say, break the shackles of debt, poverty and impoverishment.

Hamraz Sarwani

Hamraz Ahmad is an independent political analyst who also works as a Research Associate at VTT Global, an Islamabad-based development consultancy. He has a post-graduation degree in International Relations from Quaid-i-Azam University, Islamabad, Pakistan. He tweets @HamrazSarwani

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