This will be the 22nd time we are going to the IMF for a loan but why do we keep going back?
The IMF has a number of success stories — Ireland, France, UK and South Korea are countries that have been a part of IMF programmes that greatly helped their economies.
Prime Minister Imran Khan and the PTI government say the reason we can’t shake free of the IMF is corruption and a lack of policy. However, these may not be the sole culprits.
Most IMF programme success stories are from first world countries. Some economists believe that the programmes are not all that helpful for developing economies or poor countries.
The loans given out through IMF programmes come with conditions like structural reforms, currency devaluation and privatisation. Structural reforms to widen the tax base and fix defunct monetary policies, currency devaluation to increase exports and limit imports and privatisation so the government can sell money-losing enterprises to pay back the IMF loans.
Joseph Stiglitz, winner of the Nobel Prize in economics and former chief economist of the World Bank, has been a vocal critic of the IMF and its practices. He says that the IMF conditions do more bad than good, for example rapid privatisation means people will probably lose jobs and if social security nets are underdeveloped — as they often are in developing countries — the fired staff will have no way to support their families.
Devaluing the rupee will decrease imports but the major portion of our import bill is taken up by petroleum products and heavy machinery. Both are required for a growing economy. As for increasing exports, most third world countries like Pakistan have exports with an inelastic demand. This means that even if Pakistani goods become cheaper, it won’t increase the demand for these goods by much.
For example, if Pakistani exported shirts become cheaper there’s still a limit to how many shirts a person would buy, no matter the price. On the other hand, if a country like Japan devalues its currency and as a result Japanese manufactured cars become cheaper, more people will buy Japanese cars.
The IMF records transfers in SDR, which is its own currency. If we add up all the loans we’ve taken from the IMF, and convert it to US Dollars, the total amount borrowed is more than $27 billion; and this is without adjusting the loans to inflation. Read our story on Pakistan’s 60 year history with the IMF here.