IMF debts and Pakistan's current economic crisis

The International Monetary Fund (IMF) has funded Pakistan time and again, which has gripped Pakistan in a vicious cycle of loans, interest, and debt repayment. In 2008, Pakistan struggled to avoid seeking IMF's help when the country was on the verge of default on its sovereign debt of about $4 billion. The Pakistani government was reluctant to accept this assistance for several reasons. First, there is a history of poor relations between Pakistan and the IMF. Second, relations between the Pakistani government and the IMF may have been further strained by reports that IMF applied pressure on the World Bank to cancel $300 million in aid to Pakistan. Third, the government was concerned that the conditions IMF would impose on the country would be disastrous for Pakistan, both economically and politically.

However, when all other avenues failed, the Pakistani government approached the IMF to bail out the country in November 2008. The government reached an agreement with the IMF for $7.6 billion to be given as loans over the next 23 months. The repayment of this loan is to begin in 2011 and will continue until 2015.

IMF will be monitoring Pakistan's economic performance to make sure that the country is on the right track. The performance criteria to be used include the State Bank of Pakistan's (SBP) net holdings of foreign and domestic assets, the government's fiscal deficit, SBP's holdings of government debt, as well as an IMF assessment of Pakistan's achievement of structural economic changes (such as tax reform, monetary and exchange rate policies, and reform of the nation's social safety net). Failure to meet the performance criteria may result in the withholding of IMF assistance.

By March 2009, economic data from Pakistan indicated that the combined effects of the global economic recession and the IMF conditions were slowing Pakistan's economy more quickly than had been projected by the IMF, making it less likely that Pakistan would be able to meet the required performance criteria. After consultation, Pakistan and the IMF lowered the target GDP growth rate for fiscal year 2008/2009 from 3.4 per cent to 2.5 per cent.

Assuming Pakistan is able to secure the additional capital assistance it needs, it will not end the nation's economic problems. Pakistan's recent period of economic growth was based on a combination of export expansion and inward foreign direct investment (FDI). Pakistan was able to finance its modest trade and capital account deficits in part due to the inward FDI and in part due to remittances from overseas Pakistanis.

Considering all the above mentioned facts, the Pakistani government has to keep a strict check on its economy, because Pakistan's sovereignty and existence is at a high stake.