Why is IMF Being So Tough With Pakistan?

The delay in IMF has an adverse impact on the already rotten economy of Pakistan, so why IMF is so harsh with Pakistan leaving the entire courtsey behind?

Staff-level agreement: IMF, SBP governor to hold talks today

Pakistan’s economy is at a crossroads due to a growing debt crisis and diminishing foreign currency reserves. The International Monetary Fund (IMF) has been assisting Pakistan in stabilising its economy, but the country’s poor policies and the IMF’s unsuccessful efforts have been unable to place Pakistan on a sustainable path.

The IMF has attempted 22 times without success to solve Pakistan’s financial difficulties. IMF programmes have concentrated on decreasing fiscal imbalances via tax measures without addressing their effect on investment, economic activity, export promotion, and income distribution. This has resulted in sluggish exports, poor investment rates, and collapsing small and medium-sized firms (SMEs), resulting in severe unemployment.

Similarly, the current 22nd programme has failed to provide major benefits. Pakistan has adhered to the IMF’s stabilisation programme, although neither administration over the program’s duration has been able to rein in spending that surpass 20% of GDP. To the disadvantage of growth and competitiveness, the IMF pushed on complicated tax policies, disregarding their influence on economic activity and resource allocation. As a consequence, economic development has slowed, exports are falling, inflation has gradually climbed, and interest rates have reached a record high of 40%.

IMF conditions: Govt raises electricity tariff for export sector    

But the IMF’s strict belief that higher interest rates are the only way to stop inflation and bring in more capital has failed. Even though high interest rates have hurt business and made the government’s job harder, inflation has slowly gone up, making it more expensive to do business and discouraging investment and exports. The prescription of the IMF to safeguard the interest revenues of banks and creditors from inflation erosion has benefited the wealthy while failing to shield the poor from inflation’s burden.

The SPI analyses the prices of 51 important products, including food, household goods, and gasoline, in Pakistan. In addition, the cost of other vital goods, including bread, ghee, milk, legumes, meat, tea, and salt, rose as well. The growing trend in inflation continues to influence the cost of living in the nation as a whole, notwithstanding the decline in prices for a few commodities.

Pakistan’s government is taking steps to control inflation as it tries to get a $1.1 billion loan from the IMF (Extended Financial Facility, or EFF).Recently, the federal government passed a’mini-budget’ that increased taxes by Rs170 billion to increase revenue collection in accordance with IMF requirements. Despite the fact, the situation for the average citizen remains difficult. The rising rate of inflation has made it difficult for individuals to satisfy their daily necessities and cover their household bills. It remains to be seen how successful these efforts would be in reducing the inflation rate and relieving the burden of the Pakistani people.

Monthly inflation report of Feb 2023 released

The Staff Level Agreement (SLA) between Pakistan and the IMF is still ongoing, with outstanding problems relating to gross finance requirements and currency intervention. In the next few days, the SLA is anticipated to be finalised, followed by board approval, the ninth review, and the transfer of monies to the State Bank of Pakistan’s account. Concerns linger, however, about the country’s economic viability beyond June, since substantial repayments are due over the following 12 to 18 months. Pakistan may need a new IMF programme and assistance from friendly nations, but political stability is necessary for this to occur.

The IMF is unconvinced that the Pakistani currency is market-based and wants guarantees that the State Bank of Pakistan does not intervene. In addition, interest rates may increase higher, and import restrictions must be relaxed to fulfill IMF requirements. In the next two years, the nation needs a cushion of around $20 billion in order to avoid debt restructuring and proceed towards development.

For the week ending March 10, the Sensitive Pricing Indicator (SPI) showed a 1.37 percent year-over-year increase. According to a data published by the Pakistan Bureau of Statistics(PBS), the weekly inflation rate rose by the same proportion, hitting 42.27 percent.  The issue now is why the IMF is so harsh with Pakistan. The causes for this may be found in both the current and distant past. Let’s investigate these causes.

Pakistan has been a regular beneficiary of International Monetary Fund (IMF) loans, which often come with strict requirements. In 2019, under the leadership of Imran Khan, Pakistan signed the most severe IMF agreement in its history. Pakistan’s economy has been sinking, and the nation has failed to make the required changes to turn things around. Therefore, the IMF is very severe with Pakistan.

The COVID-19 epidemic also hindered economic reform and corrective measures, despite the government’s efforts to boost the economy via a variety of incentives. Unfortunately, these steps exacerbated the situation and made it impossible to comply with IMF requirements. In 2021 and 2022, the government signed a review report with the IMF to restore the agreement. Nevertheless, Khan’s move to decrease the prices of electricity and gasoline by 5 and 10 rupees, respectively, sowed distrust between Pakistan and the IMF. The deviation from the agreement demonstrated the country’s lack of commitment to enacting the required changes.

Pakistan, IMF talks begin today


Pakistan has participated in several IMF initiatives in the past, but only two have been completed. Under the presidency of Pervez Musharraf, a non-IMF-traditional poverty reduction initiative was implemented. The second programme was finished under the Muslim League (N) administration. Under this programme, the IMF granted Pakistan concessions despite its failure to meet sixteen objectives. Because of Pakistan’s participation in the battle against terrorism on the European and American borders at the time, the board and staff of the IMF not only authorised the whole loan, but also lauded the country’s strong economy despite the absence of numerous reforms. However, the things have changed now.

Pakistan’s inability to meet IMF requirements has been made worse by the fact that the country’s leaders keep changing. When Miftah Ismail became finance minister after the inauguration of the new administration, he received resistance from his superiors in London and Islamabad to reverse the anti-IMF acts taken by Imran Khan’s administration. While Ismail was successful in persuading Sharif and promoting the proposed adjustments, the IMF’s requirements grew more stringent, making it difficult for Pakistan to comply. Ishaq Dar assumed control of the country’s economy as finance minister, but his attempts to expedite Pakistan’s access to the IMF were unsuccessful, and the IMF’s terms grew more stringent.

According to experts, the IMF is not prepared to make concessions to Pakistan at this time, and the nation must perform the required changes to fulfil IMF requirements. To make the required adjustments and put Pakistan’s economy back on track, however, would need strong leadership and determination.  Failing to solve these concerns might result in a path comparable to Sri Lanka’s recent history. Pakistan’s economy is at a crucial moment, and the government must move expeditiously and effectively to solve the core concerns of raising foreign currency revenues and fostering development. In addition, the IMF must rethink its approach to stabilisation programmes and evaluate the larger effects of its policies on the economy. Only then can Pakistan progress towards a rich and sustainable future.

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance

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