International Monetary Fund
The International Monetary Fund (IMF) was established in 1944 to promote international economic cooperation and provide its 189 member countries with short-term loans (maximum Limit 1 trillion $) if they experience a financial crisis or a shortage of liquidity for international trading.
Out of the 36 lenders, the five largest contributors to the IMF are the United States (16.75%), Japan (6.23%), Germany (5.81%), France (4.29%), and the UK (4.29%)—all of which, unfortunately, are in debt.
IMF bailouts typically have a short-term focus. Recipient countries are forced to implement economic reforms to return their budgets to surplus in a short period of time. However, in the long term, tough austerity packages may further deteriorate the weak economies of recipient countries.
Additionally, IMF bailout policies are overly rigid as they fail to accommodate a recipient country’s economic status and cultural background as part of the bailout design and implementation process.
Obligation On Bailed-Out Countries.
Bailed-out countries are required to implement a series of economic reforms in line with IMF policy. Debates about the appropriateness of the IMF bailouts continue to thrive. Opponents of IMF bailouts argue that they make troubled countries further dependent on the IMF, while proponents claim that the liquidity supported by the IMF is crucial in preventing extreme financial consequences.
IMF Bailouts Include…..
IMF programs have three components: financing packages, structural reforms, and macroeconomic policies. These three elements are inseparable as together they form a single offer of assistance, known as an IMF-supported program.
In what way, if any, do IMF bailouts contribute to a country’s financial recovery and stability?
The IMF provides financial assistance to countries only if they agree to implement a series of economic policy reforms to revive and maintain a sustainable economic growth rate in the long term.
Debtor countries are normally reluctant to do so because they need to give up a certain level of solvency autonomy in order to receive external financial support.
Typical economic reforms include
- Devaluing currencies
- Lowering tariffs
- Encouraging foreign investment
- Privatizing state-owned enterprises
- and reducing expenditure on the public sector.
It is fair to say that these policy reforms are mainly free-market oriented.
The IMF was criticized for forcing recipient countries to take on policy reforms without considering the difference in economic status, business environment and culture among these countries.
In addition, the tough austerity package attached to bailout funds has implications for leadership at the highest level and forces governments in recipient countries to sacrifice
- Policy autonomy,
- Cut public spending
- increase tax
- and retrench staff, in order to return budgets to surplus in the short term.
Unfortunately, these policy reforms often lead to
- Inactive business investment,
- Poorer government service,
- Severe social instability
- and a higher unemployment rate—
all of which may damage the economic development of bailed-out countries in the long term.
For example, the IMF has been criticized for being one of the major causes of the 2014-2016 Ebola outbreak in Africa, because its policy of prioritizing debt repayment over domestic spending has weakened the public health infrastructure in Sierra Leone, Guinea and Liberia who were hit hardest by the epidemic.
Pakistan’s History with IMF
At a Glance
2019 Projected Real GDP (% Change) : 2.92019 Projected Consumer Prices (% Change): 7.6Country Population: 204.729 millionDate of Membership: July 11, 1950Article IV/Country Report: July 13, 2017Outstanding Purchases and Loans (SDR): 4153 million (March 31, 2019)Special Drawing Rights (SDR): 269.24 millionQuota (SDR): 2031.0 millionNumber of Arrangements since membership: 21
All loans are in thousands of SDRs (SDR is IMF currency, 1 SDR=1.39 USD)
|Extended Fund Facility||Sep 04, 2013||Sep 30, 2016||4,393,000||4,320,000||4,320,000|
|Standby Arrangement||Nov 24, 2008||Sep 30, 2011||7,235,900||4,936,035||0|
|Extended Credit Facility||Dec 06, 2001||Dec 05, 2004||1,033,700||861,420||0|
|Standby Arrangement||Nov 29, 2000||Sep 30, 2001||465,000||465,000||0|
|Extended Credit Facility||Oct 20, 1997||Oct 19, 2000||682,380||265,370||0|
|Extended Fund Facility||Oct 20, 1997||Oct 19, 2000||454,920||113,740||0|
|Standby Arrangement||Dec 13, 1995||Sep 30, 1997||562,590||294,690||0|
|Extended Credit Facility||Feb 22, 1994||Dec 13, 1995||606,600||172,200||0|
|Extended Fund Facility||Feb 22, 1994||Dec 04, 1995||379,100||123,200||0|
|Standby Arrangement||Sep 16, 1993||Feb 22, 1994||265,400||88,000||0|
|Structural Adjustment Facility Commitment||Dec 28, 1988||Dec 27, 1991||382,410||382,410||0|
|Standby Arrangement||Dec 28, 1988||Nov 30, 1990||273,150||194,480||0|
|Extended Fund Facility||Dec 02, 1981||Nov 23, 1983||919,000||730,000||0|
|Extended Fund Facility||Nov 24, 1980||Dec 01, 1981||1,268,000||349,000||0|
|Standby Arrangement||Mar 09, 1977||Mar 08, 1978||80,000||80,000||0|
|Standby Arrangement||Nov 11, 1974||Nov 10, 1975||75,000||75,000||0|
|Standby Arrangement||Aug 11, 1973||Aug 10, 1974||75,000||75,000||0|
|Standby Arrangement||May 18, 1972||May 17, 1973||100,000||84,000||0|
|Standby Arrangement||Oct 17, 1968||Oct 16, 1969||75,000||75,000||0|
|Standby Arrangement||Mar 16, 1965||Mar 15, 1966||37,500||37,500||0|
|Standby Arrangement||Dec 08, 1958||Sep 22, 1959||25,000||0||0|
Stand-by Agreements or SBAs are short- to medium-term loans that have to be paid back between 3.5 to 5 years. The loan may be given in up to three years, but is usually given in a 12- to 18-month period. Stand-by Agreements come under the General Resource Account, which means they’re not specifically designed for poor countries, unlike programs under the Poverty Reduction Growth Trust.
But what about the remaining nine agreements? These agreements are for a number of IMF programs aimed at poverty reduction, structural reform, containing a domestic economic crisis, or protecting smaller weaker economies against the effects of a broader international crisis
Of the nine loans other than IMF bailouts taken by Pakistan, four were given under the PRGT, which means they were given to us to help alleviate poverty and boost economic growth.
Between 1980 and 1995, we were part of another seven programs and all but one were between one and two years long.
Bailout Packages By PML-N & PPP
Between 1997 and 2013 — when the PML-N took out the last $6.4 billion loan — there were a total of six programs. With the exception of one, all of them were approximately three years long.
PML-N accepted four IMF deals from 1990 to 2017 out of which three are IMF bailouts. PPP is the only ruling party which added the most to Pak Loans by arranging and accepting 9 IMF packages from 1973-2008.
This will be the 13th time we will be going to ask for an IMF bailout, and overall it will be the 22nd loan we will take from the IMF.