Ahmed Mukhtar Naqshbandi
When Pakistan Started Going to IMF for Support
Recently, in 2019, when the balance of payment conditions started to worsen, Pakistan decided to go to IMF for the twenty-second time for a loan of $1 billion. Based on weak fiscal conditions, IMF gave loans on strict terms like increasing energy tariffs and removal of such subsidies, increase in taxation, divestment of public entities, and primary deficit in fiscal policies to be zero or living within the means.
Gen Ayub’s Regime – Three IMF Programs
In history, around December 1958 almost 61 years ago, when Pakistan first approached the IMF, in the Ayub Khan regime for $25 million (money never withdrawn) only and July 2019, when it successfully negotiated the 22nd program, with the Fund approving SDR23.656 billion ($31.629 billion) for Pakistan.
Just after that, Ayub’s finance managers went for two back-to-back IMF programs in 1965 and 1968 respectively. This time, however, they ended up withdrawing around SDR112 million, the entire approved amount. Here is the point where Pakistan actually became a new customer for the IMF.
Zulfikar Ali Bhutto Era’s IMF Loaning – Three IMF Programs
After Ayub’s era, it was Zulfikar Ali Bhutto – who actually fetched the country to the doors of the IMF again on May 18, 1972. It might be the case that Zulfikar’s economic managers gave more space to the IMF, for he was almost unstoppable in frequently approaching IMF.
During his regime, Pakistan approached the IMF three times consecutively from 1972 to 1974 and then again in 1977, and it withdrew about SDR314 million while the approval range was SDR330 million.
Gen Zia Ul Haq’s Tenure – Two Loans
Then the toughest part of the country’s past starts, after Zulfikar Ali Bhutto was succeeded by General Ziaul Haq. He had many differences with Zulfikar Ali Bhutto, but he also developed a fascination with the IMF, or in both these times, the need for foreign assistance for the balance of payment support was much higher.
Gen Zia ul Haq kept the ball rolling during his regime, as from 1980 to 1981, Pakistan approached the IMF twice and got loans of SDR2.187 billion, out of which only SDR1.079 billion were disbursed.
Gen Zia Ul Haq died in a plane crash in 1988, but his habit pertaining to the IMF lived on. Though democracy returned to the country, Pakistan found the two struggling democrats of recent times: Nawaz Sharif and Benazir Bhutto (daughter of Zulfikar Ali Bhutto). They got prominence in the world, too, as bringing back democracy in the country, though they had been politically fighting each other.
Benazir Bhutto & Nawaz Sharif 1989-1990 – The Lost Decade – 8 IMF programs
Loans approved: SDR3.606 billion & Disbursements: SDR1.284 billion
For the balance of payment support, during the 1990s, Benazir Bhutto and Nawaz Sharif sought a total of eight bailouts packages from the IMF as the country was coping with the aftermaths of the Soviet-Afghan war and continuous political upheavals.
Benazir Bhutto, just after assuming the office of the Prime Minister for the first time in December 1988, signed two IMF packages: an SDR273 million Stand-by Arrangement (SA) and an SDR382 million Structural Adjustment Facility (SAF).
IMF made two payments of SDR122.4 million and SDR189.5 million in 1991 and 1992.
Nawaz Sharif went for an SDR265.4 million loan in 1993. The IMF paid SDR88 million to Pakistan in 1993.
Again, as head of the ruling regime, between 1994 and 1995, Benazir Bhutto’s economic managers signed three IMF loans of SDR379 million, SDR606 million, and SDR562 million, respectively. Though the disbursements remained lower; and the Fund transferred SDR123 million, SDR133 million, and SDR107 million only before the PPP government was discontinued in November 1996.
Again, in control, as Prime Minister, Nawaz Sharif negotiated two programs — an extended credit facility (ECF) and an extended fund facility (EFF) — in 1997 of SDR682.4 million and SDR454.9 million, respectively. IMF disbursed SDR250 million just before Nawaz Sharif’s government was removed in October 1999 in a military coup.
During her two regimes, Benazir Bhutto negotiated five programs totaling SDR2.2 billion and received SDR676.26 million.
Nawaz Sharif went for three IMF loans totaling SDR1.4 billion, and Pakistan received only SDR608 million.
Political instability marred the economic performance and restricted the governments from implementing the reforms suggested by the IMF, which remained generous in disbursing loan after loan. However, the more loan practice secured IMF, a name synonymous with higher tariffs and increased taxes in the country.
Zardari and Musharraf – 2000-2013 – Three IMF Lending Programs
Loans approved: SDR8.734 billion & Disbursements: SDR5.2 billion
One of the extraordinary economic reforms implemented in the country was during the military regimes, and one of them was ten Pervez Musharraf’s regime. Gen Pervez Musharraf era enjoyed extraordinary foreign currency inflows in the form of civil and military aid for the most part in its 9 years, but it got two IMF loans in the first two years.
IMF stats show that a total of SDR520 million were lent to Pakistan in 2000 and 2001. The first was a stand-by arrangement (SBA) of SDR465 million under which SDR150 million were disbursed, and the second one was an extended credit facility (EFF) of SDR1.033 billion under which only SDR315 million were given.
However, between 2001 and 2008, Pakistan steered clear of the IMF as the foreign investment in telecom and divestment of PTCL and the oil and gas sector prevented a balance of payment crisis, but this money supported to enhanced Pakistan’s forex reserves, which went down rapidly between 2006 and 2008.
In 2008, the Zaradri’s Pakistan People’s Party government was given the largest-ever loan of SDR7.235 billion from the IMF. It could be the largest-ever stand-by arrangement too.
However, only SDR5.2 billion were given in three installments between 2008 and 2010.
After that, forex reserves went up, and the PPP government got comfortable without completing the program as it also obtained good funds under the Kerry-Lugar program until 2013, when the United States blocked the funding on strained mutual relations.
The PPP government then realized that the economy performed well below its potential, and it required a gross domestic product (GDP) growth rate of 7% on average to absorb youth labor force.
PML-N Nawaz Sharif Regime 2013
The PML-N came back in power in 2013, and, obeying tradition, went to the IMF as soon as possible, which led to securing the second largest program that touched SDR4.399 billion. As per the IMF’s review, this three-year program (completed in September 2016) strengthened the macroeconomic resilience of the country.
The IMF’s comments, in its conclusive statement, were that due to this loan, growth went up, the fiscal deficit was cut, and foreign currency reserves went up again. Structural reforms again picked a pace.
They further highlighted that the long-standing fiscal and energy sector constraints began to be tackled, and social safety nets were strengthened. Accumulation of arrears in the energy sector resurfaced, while fiscal slippage from the ailing public sector entities continued to weigh on limited financial means and exports could not, thrice as well.
Totals of All Regimes
All in all, by now, Pakistan has borrowed around SDR23.65 billion from the IMF, out of which 47% of the loans were taken by PPP, followed by PML-N at 35%, while the military regimes fell behind with merely 18%.
When it comes to getting loans from the IMF, the PPP is seen to be far ahead in this begging bowl game, having 10 times borrowed from the IMF.
However, the PML-N went to the IMF only for four programs; it secured a bigger number of loans than Gen Ayub, Gen Musharraf, and Gen Zia’s military regimes did in their seven loans.
Last Bailout Package of IMF – PTI First Loan & PML-N’s 5th
On July 3, 2019, the last IMF program Extended Fund Facility (EFF), was approved in the PTI regime, with Prime Minister Imran Khan in power, which was continuous and the regime shifted, and PML-N got the throne with Shehbaz Sharif as new Prime Minister.
He continued with the program, which is still underway. Its ending date was October 2022, which has been extended to end-June 2023 now. This is total 4.268 SDR package, out of which SDR1.04 billion withdrawn, and the same amount is remaining.
What are SDRs – IMF Currency
Before going on, one should know what SDR stands for, that is, “Special drawing rights” is IMF and World Bank units of account, not exactly its currency per se, but in normal term, it is taken as donors’ currency. It normally has a somewhat higher value than a dollar. IMF sets its unit value regularly to facilitate an estimate of the loan amount in five big currencies.
Successful Programs
However, not all of that money approved was given to Pakistan, as only one or two of the 22 programs were fully disbursed or completed so far. One program was extra successful and was cut before time, saying we do not need it, so technically, IMF does not include it in the completed program. It was in the Musharraf era’s 2nd consecutive program; the first was successfully completed.
Why Need of IMF – History of Balance of Payment Support
IMF actually provides a balance of payment support and does not actually give a loan, as World Bank does. It means when IMF pays dollars, the country cannot issue counterpart local currency in rupee, whereas in the case of World Bank, the counterpart local amount in rupees is added to the national exchequer. Its dollar is needed for trade and payments, not for any project.
How IMF Program Works
The IMF lends through concessional and non-concessional arrangements, or can provide outright loans too. A lending arrangement, which can be similar to a line of credit of banks, is approved by the IMF Executive Board to help a country’s economic and financial difficulties.
The arrangements require the member to implement specific conditions, and these are subject to periodic reviews in order to continue the program. An outright credit/loan can also be given by the IMF; however, it does not need a member to follow specific conditions.
IMF Programs With Pakistan (In Thousands of SDRs)
4/ The expiration date for outright disbursements (RFI and RCF), shows the date the disbursement was drawn, or the date the disbursement expires, that is, 60 days following the Board approval date. The expiration dates for arrangements under the GRA, PRGT, and RST reflect either the approved expiration date of the arrangement or the date the last disbursement takes place under the fully drawn arrangements.
