Pakistan Bulletin

An up-to-date and informed analyses of key issues of Pakistan.

Editorial: Pakistans’s Annual Budget and the Role of IMF

June 2024

Pakistan’s annual budget being prepared in collaboration with the IMF highlights the country’s economic vulnerability.

The collaboration with the IMF in creating the annual budget for 2024-25 underscores Pakistan’s economic vulnerabilities and dependency. This is just as the country wrapped up the last tranche of the US$3 billion standby arrangement approved in July last year, an extremely low point in the country’s economy.
The next tranche being sought is a medium-term bailout package under the structural reforms facility of IMF. As hinted by IMF, the reforms being sought in exchange for “bail out” include: “… stronger public finances, through high-quality revenue measures to broaden the tax base, restoring energy sector viability, improving institutional governance and anti-corruption effectiveness, State Owned Enterprise reform, building climate resilience, and creating a level playing field for private businesses to promote investment and job creation.”

Pakistan’s Prime Minister Shahbaz Sharif announced that the fiscal budget was prepared in collaboration with the IMF. The reason behind this is the country’s eagerness to seek a 24th bailout package for “structural reforms”.

On paper, it reads like these programmes are aimed at balancing the economy in favour of the poor, and redistributing resources from the rich and resource-intensive segments of the economy towards the vulnerable. However, it has been exactly 44 years since Pakistan has been receiving funds in the form of Enhanced Structural Adjustment Facility (ESAF) and Extended Fund Facility (EFF) from IMF to restructure its economy (starting July 11, 1980); and Pakistanis – especially the low income section – have seen nothing other than misery, vulnerability and economic and political disenfranchisement in exchange for IMF bailouts.
The typical requirements of any IMF financing packages for recipient countries includes a standard menu of reduction in fiscal deficit through reduced government spending, elimination of essential subsidies, and economic liberalisation (which typically entails the curtailment of powers of the state through privatisation, deregulation, and reduction in the work force), and market-led exchange rate mechanism. As these programmes have been in action since 1980, it may be a good time to do a cost-benefit analysis of these programmes  for the citizens of Pakistan.

To begin with, experts observe that the main motivation for entering into adjustment programmes, in the case of Pakistan, has consistently been the short term foreign liquidity infusion offered by IFIs, and not the desire for longer term structural change. For any long term structural change, the government will have to embark upon reduction of non-development, non-combat expenditure and rationalize the scale of the public services force, which has never happened in the history of the country. However, both entering into short and medium term bailout packages and designing its fiscal outlay on the dictates of the IFIs, have brought a social cost for the large majority of the country’s population, which includes low income groups, workers, women, trade unions and other groups. IMF’s recipe for cuts in government spending affected the social sector development programmes including education, adult literacy, and health. Focusing on privatisation and contract work in the 1988 structural adjustment programme – originally signed by the interim government and imposed on successive elected governments – led to a rise in informal work arrangements promoting seasonal, contract, and piece-rate work which is precarious and insecure while also associated with low social and economic status. Privatisation and contract labour has also led to breaking of the back of trade unions and exposing workers to workplace and employment insecurity. Moreover, the low wages and unprotected status of workers has reinforced poverty, while the removing of subsidies on essential items, especially food, also led to decline in real wages. IMF’s demand for market led exchange rate system has resulted in expensive imports, which has a bearing on industries which are mostly dependent on imports for machinery and technology. This raises cost of doing business, making businesses unsustainable and noncompetitive. IMF’s demand to raise energy prices and remove energy subsidies exposes low income groups and businesses to further vulnerability and has given way to social unrest in the country.

Strangely, the so called stabilisation funding has never achieved stability as such and Pakistan keeps returning to IMF further bail outs only to further push its population down the poverty spiral.

As all the articles in our current issue observe, the citizens of Pakistan have lost hope in the economy and see the budget as nothing other than a punitive exercises aimed at squeezing their limited resources and capacity to help the state maintain the status quo. Contrary to its desperate attempts at image building, IMF is only seen as a silent partner in this mission to disenfranchise the Pakistani nation.

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