Pakistan’s economic woes persist, as it battles mammoth twin deficits, deteriorating foreign currency reserves, low exports, diminishing tax revenues, a weak currency, onerous external debt payments, and soaring sovereign debt.
Despite interventions to stave off a balance of payments crisis that would force Pakistan to submit to the Fund – such as currency devaluations by Pakistan’s Central Bank, a $1 billion loan from Saudi Arabia, a reported $2 billion pledge from China, and the issuance by Pakistan of $1 billion worth of bonds to its citizens living overseas – dialogue between the IMF and Pakistan on the way forward continues.
The focus of the IMF programs was never institutional improvement but structural adjustments, which only protected the interests of a small elite, as these neoliberal policies worked well for them and not the general people.Abdul Khaliq, CADTM Pakistan
The road ahead, however, could prove bumpy. A February statement by IMF Managing Director Christine Lagarde highlighting that, “the IMF stands ready to support Pakistan”, followed a claim from a senior official that Khan ordered the finance ministry to prepare for a domestic backlash against approaching the IMF. The official stated, “The conditions associated with a loan will include some harsh measures and the government will have to be very prepared to explain why Pakistan has been forced to return to the IMF.”
Under some of the previous IMF structural adjustment programmes over the last four decades, debt-justice network CADTM Pakistan revealed that the unemployment rates increased, as did levels of inequality and poverty. As reported in Pakistan-based The News International last August, a large rally was held opposing further IMF loans and condemning what they expected would be further privatisation, which participants noted would be to “the detriment of the working classes” and result in “costlier education, healthcare, electricity, gas, food and other items of daily living.”
According to Pakistan Today, the speculated forthcoming loan conditions include a general sales tax hike, currency devaluation, and the privatisation of state enterprises – demonstrating a lack of deviation from programmes gone by (see Updates 83, 72, 64).
US-China trade tensions
Amid escalating US-China trade tensions and unease over China’s alleged use of ‘debt diplomacy’ as an element of its bilateral development approach, U.S. Secretary of State Mike Pompeo warned in July, “Make no mistake. We will be watching what the IMF does… There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself.”
A senior Pakistani government adviser responded to Pompeo’s comment by telling the Financial Times, “The Americans are trying very hard to put pressure on Pakistan because they have their own interests. But making it so hard for Pakistan to successfully negotiate a new program with the IMF makes no sense. Ultimately, Pakistan will search for other options if the road to the IMF is blocked.”
Pakistan is not the first instance in which the alleged political neutrality of the Fund in matters of geopolitics is being called into question, as the debate about the role of the IMF in Greece clearly demonstrates (see Observer Summer 2015).
A painful debt cycle
Research in 2017 by UK-based civil society organisation Jubilee Debt Campaign UK (JDC) showed that in 30 of the last 42 years, Pakistan has received loans from the IMF, making this one of the most sustained periods of lending to any country.
On the question of why a country whose last IMF programme ended in 2016 has already requested another loan, a former senior IMF official told the Financial Times in November, “Assessing debt sustainability is at the heart of IMF competence. If you get it wrong or go about it without the information, it hurts your credibility.”
Noting the sustained lack of debt sustainability, international civil society organisation Islamic Relief and JDC 2013 report argued that IMF loans have been passed down through generations, with imposed economic conditions that make it even harder to build a stable economic future. The report avowed, “The IMF lends money so debt payments can be made. It bails out the original lenders at the cost of the future generations which inherit the debt. Pakistan’s history is just one of many examples of how this strategy is failing the world’s poorest communities.”
Abdul Khaliq, president of CADTM Pakistan stated, “The cycle of IMF programmes with Pakistan is painfully frequent as compared to other countries” adding that, “Under previous IMF programmes, Pakistan mostly saw negative impacts on its economic growth … [and that] any improvement in country’s macroeconomic indicators was artificial during the time of IMF programs.” He stressed that, “The focus of the IMF programs was never institutional improvement but structural adjustments, which only protected the interests of small elite, as these neoliberal policies worked well for them and not the general people.”
Commenting on the new Guiding Principles on human rights impact assessments of economic reforms, which were adopted by the United Nations in March and are aimed at governments and international financial institutions (see Observer Spring 2019), Pakistan’s official statement in February noted, “We fully agree that the impact of economic reform measures and policies should be evaluated in correlation to the existing international human rights norms and standards. We therefore believe that external creditors must also carry out an impact assessment of their conditionalities on the population of a state receiving the loan. This will also be helpful to the State concerned in undertaking an informed policy decision.”