Consequences Of The IMF Deal Resumption

Forgetting the fiery speeches of the present office holder Prime Minister to the leaders before him, focusing to break the shackles of lending from IMF, our economic analysts must be glad to see the resuming of the $6 billion delayed loan package from IMF.

The disbursement of $1 billion would be providing another lifeline to our weak economy, but the reform conditions attached to this IMF lending will not be bringing good news for the majority population already under economic pressures.

Pakistan is one of the long-established clients of IMF. The IMF has been issuing loans to Pakistan since the 1950s and also providing its expert guidance based on Pakistan’s macroeconomic principles. Though the government of Pakistan might not have paid attention to IMF repeated advice, but, it has not stopped this loan-providing agency from repeatedly issuing loans to Pakistan. Even though the declared objectives to help Pakistan become an increasingly prosperous country having its sustainable economy is still a far-off dream.

The $6 billion loans from IMF was taken in 2019 and it was meant to carry on for 39 months. But the loan gets suspended by IMF in January 2020 when Pakistan opposed its recommendations of increasing electricity prices and applying additional taxes. After many negotiations spell an agreement for recommencement of this loan was reached last November. The decision of IMF to reissue the loan may be explained as a sign of the lender's liberality, but it also implies that Pakistan has to cut down its spending over the next few months.

The IMF usually expects its borrower countries to create a balance between the income and spending for their debt servicing. Although the neoliberal conditions applied by the IMF to stimulate growth are well known to aggravate inequality and target vulnerable parts of the society. Especially when the borrowing government will squeeze the social sector expenditure for managing their fiscal deficit, but is not willing to cut down its defence or other administrative costs. 

The IMF loan arrangements force neoliberalism objectives like raising tax brackets, deregulation, privatization, and limiting social sector spending. Progressive taxing of the rich and bringing tax absconders to the task are not included in the tax reforms of countries like ours which is dominated by elites. Instead, further tax base broadening is imposed on the people to fill the resource starving state reserves.

In 2019-2020 more than 2 million people fell under the poverty line according to the World Bank. Current challenges include out-of-control price-hike of essential consumables, Covid-19, persisting drought in Sindh, southern Punjab, and many districts of Baluchistan are pushing the masses of the country towards poverty.

Representatives of civil society see the unpleasant effects of IMF imposed cuts on spending on the already neglected part of the public including women. Recently research is conducted by Shirakat in low-income areas of Pindi and Islamabad where they were told by the people how household’s access to basic healthcare has become difficult and hike in petrol prices made transport cost beyond public means. The high rise in electricity bills made it difficult to use light even at night and to manage household expenses more girls are taken out of schools. It is feared that the IMF's present loan arrangement will make matters worse.