The International Monetary Fund (IMF) on 9 May unlocked the immediate disbursement of about $1 billion to Pakistan under the ongoing Extended Fund Facility (EFF), a program that provides financial assistance to countries facing serious medium-term balance of payments problems.
Here’s a look at the long history of bailouts IMF has extended to Pakistan:
In recent years, Pakistan has grappled with a range of overlapping crises, including a resurgence of “state-sponsored terrorism”, and escalating border tensions with both Afghanistan and Iran. These challenges have been compounded by a deeply polarised and unstable political landscape that has long characterised the country’s governance.
Pakistan has entered into 25 financial arrangements – often referred to as “bailouts” – with the IMF since becoming its member in 1950 and has since involved over 20 loan agreements aimed at addressing persistent economic challenges such as fiscal deficits, structural reforms, and balance of payments crises.
In the latest bailout, the IMF approved an immediate disbursement of approximately USD 1 billion to Pakistan as part of its ongoing EFF. Under the terms of the agreement, Pakistan is eligible for seven equal instalments of approximately USD 1 billion each, contingent on the successful completion of biannual reviews.
The three-year, USD 7 billion aid package—finalised in July—aims to support Pakistan in achieving macroeconomic stability and fostering inclusive, resilient growth. The IMF Executive Board’s approval has resulted in the immediate release of USD 1 billion to Pakistan, raising total disbursements under the loan programme to around USD 2 billion.
Types of assistance:
1. Rapid Financing Instrument (RFI): RFI is designed to provide immediate financial assistance to countries facing urgent financial needs, such as those caused by natural disasters, conflicts, or severe balance of payments crises, according to the IMF.
Use in Pakistan: On 16 April 2020, the IMF arranged an RFI for Pakistan due to the economic impact of the COVID-19 pandemic. This arrangement provided Pakistan with financial assistance in the form of 1,015,500 Special Drawing Rights SDRs (approximately USD 1.4 billion at the time).
What is Special Drawing Right (SDR)?
The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement the existing reserve assets of member countries. It is based on a basket of international currencies, which currently includes the US Dollar, Japanese Yen, Euro, Pound Sterling, and Chinese Renminbi (Yuan).
2. Stand-By Arrangement (SBA): The SBA was agreed upon between Pakistan and the IMF on 24 November 2008. This was amidst the global financial crisis, which had a severe impact on Pakistan’s economy. Pakistan was authorised to draw 4,936,035 SDRs, which was approximately USD 7.6 billion at the time.
3. Extended Fund Facility (EFF): The EFF is a longer-term arrangement and it typically involves comprehensive reforms to address structural weaknesses in a country’s economy. The EFF agreement with Pakistan was set to run from 3 July 2019 to 30 June 2023. Pakistan was authorised to draw a total of 3,038,000 Special Drawing Rights (SDRs), which was approximately USD 6 billion at the time of the agreement.
Why Pak is swirling in debt spiral?
IMF-led economic reforms in Pakistan began in 1978 under General Zia-ul-Haq’s military regime. Prior to this, during the 1960s and 70s, Pakistan had pursued policies aimed at reducing trade dependency on the Global North, relying on soft loans to support its early development goals. However, following the global commodity price crash and the U.S. interest rate hike in the early 1980s, Pakistan, like many developing countries, faced severe financial constraints.
At that point, the IMF and World Bank began conditioning further loans on the implementation of specific economic policies such as the privatisation of state-owned enterprises, elimination of subsidies, and currency devaluation.
How 1994 Private Power Policy stab Pakistan?
Designed under IMF guidance, the 1994 Private Power Policy allowed foreign corporations to set up power plants in Pakistan with guaranteed profits in US dollars, minimal initial investment, and the right to freely repatriate earnings.
In the early 1980s, the exchange rate was around Rs. 9.90 to $1 (1982). By 1994, the rupee stood at Rs. 30 to $1, marking a significant decline in its value over the previous decade.
Moreover, Pakistan’s Weak tax system is a major driver of its debt spiral. With less than 1% of the population paying income tax, the government depends heavily on indirect taxes that disproportionately burden the poor. This inadequate revenue forces excessive borrowing, increasing debt and interest payments, which deepens the fiscal crisis and perpetuates a vicious economic cycle.
Pakistan’s terrorism factor
Since 2018, Pakistan has been designated a Country of Particular Concern (CPC) under the International Religious Freedom Act of 1998. It was redesignated a CPC in 2022.
According to the CIA World Factbook, Pakistan is one of the world’s top transit corridors for opiates and cannabis products trafficked with Afghanistan and Iran.
The Pakistani military has played an intense role in destabilising Pakistan’s governance, with several prime ministers being ousted or dismissed by military interventions, contributing to short-lived administrations. Additionally, corruption, political instability, and judicial interventions have undermined the authority of elected governments.
As a result, none of Pakistan’s twenty-two prime ministers since independence have managed to complete a full five-year term in office.
As terrorism expands and security conditions worsen, separatist movements and other armed groups may regain strength, posing a significant challenge to Pakistan’s financially strained government.
Humanitarian crisis in Pakistan
According to a World Food Programme report, Pakistan ranks as the 8th most vulnerable country to the impacts of climate change, a reality starkly illustrated by the devastating floods of 2022. The country also faces severe multidimensional poverty, with nearly 50% of an average household’s spending going toward food, and 82% of the population unable to afford a nutritious diet.
“Women and girls face significant barriers in accessing government services due to deep-rooted social and cultural norms. Nationwide, over 26 million children aged 5 to 16 are out of school – more than half of them girls,” according to the report.
Also Read: The rebel women of Pakistan
The rise of female suicide bombers in Pakistan reflects a shift in the strategies and tactics of terrorist groups. In many parts of traditional Pakistani society, there is resistance to women receiving formal education.
Whether united or fragmented, stability and governance. A destabilised Pakistan increases the likelihood of further terrorist group proliferation in the region.
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