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ECONOMY OF PAKISTAN
The economy of Pakistan is 25th largest in the world (in nominal terms) and 27th largest in the world (in absolute Dollar terms). Pakistan has a semi-industrialized economy which mainly encompasses textiles, chemicals, food processing, agriculture and other industries. Growth poles of Pakistan's economy are situated along the Indus River diversified economies of Karachi and Punjab's urban centers coexist with lesser developed areas in other parts of the country .The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan reached as high as 25.0.
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Impact of IMF on Pakistan Economy
SNAPSHOT OF PAKISTAN ECONOMY
1 Pakistani Rupee (PKR) Rs. = 100 Paisas
Fiscal year Trade organizations Statistics GDP
July 1–June 30 ECO, SAFTA, ASEAN, WIPO and WTO
$174.8 billion (nominal)(2010)  $464 billion (GDP-PPP) (2009)
GDP growth GDP per capita GDP by sector
4.2% (2009) $2400 (2010) agriculture: 19.6%, industry: 26.8%, services: 53.7% (2007) 14.17% (2009-2010)
40% (2010) Population below poverty line
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) Petroleum. United States 5.7%. sports goods.b.5%. Edible oils. bed linen. materials.55 billion (2010 est. steel.05 billion (2009 est.9% (2006 est. Kuwait 4. cotton cloths. Machinery. leather goods. telecommunications. Tea China 14. Germany 4. and yarn).7%. Transportation equipment.Impact of IMF on Pakistan Economy Labour force Unemployment Main industries 55.) textiles.) $30. UAE 8.) Page | 3 .3%. (2009 est. clothing.4%. chemicals manufactures.) 11. food processing.) (67th Export goods textile goods (garments.1%. Japan 6. Germany 5%. Saudi Arabia 10. automobiles. paper products 83rd Ease of Doing Business Rank External Exports $19.88 million (2009 est.2% (2009 est.) Main export partners Imports Import goods Main import partners Public finances Public debt Revenues Expenses $58 billion (2010) $23. UK 6%. carpets and rugs United States 22. Iron and steel. UAE 8. Plastics. rice. chemicals.) $28. transport equipment.21 billion (2009 est.3%.o.4%. Petroleum products. Paper and paperboard.7% (2006 est. beverages.31 billion f. China 15. construction. machinery.
581. caused a large increase in the country's public debt and led to slower growth in the 1990s.92 Rs 30. Average annual was 6. Economic mismanagement in general and fiscally imprudent economic policies in particular.64 1.093 2.54 Rs 59.37 Rs 4. Pakistan's average economic growth rate has been higher than the average growth rate of the world economy during the period. the latter war brought the economy close to recession. was also above average.5% in the 1980s.355 131.07 Rs 21.36 Rs 9.62 2. Karachi was seen as an economic role model around the world. During the 1960s.26 Rs 9. US Dollar Exchange Rate and Per Capita Income is given below: YEARS GROSS DOMESTIC PRODUCT 20. Pakistan was seen as a model of economic development around the world.Impact of IMF on Pakistan Economy ECONOMIC HISTORY At the time of independence in 1947.740 51. Average annual growth fell to 4.8% in the 1960s.058 31.826.460 569.114 1. The economy recovered during the 1980s via a policy of deregulation.330 283. Industrial-sector growth.029.461 3.16 Rs 51. and 6. Pakistan was a very poor country and its economy majorly depends on agriculture.86 1. as well as an increased inflow of foreign aid and remittances from expatriate workers. The table which gives every five years progress of GDP.268. Since independence.6% in the 1990s with significantly lower growth in the second half of that decade.40 Rs 4.28 2.76 3.111 6.83 Rs 16. and there was much praise for the way its economy was progressing. and there was much praise for its economic progression.76 3. In particular.41 1.71 Page | 4 1960 1965 1970 1975 1978 1985 1990 1995 2000 2005 .103 US DOLLAR PER CAPITA EXCHANGE INCOME (as % of US) Rs 4.76 3. 4. although economic output rebounded sharply until the nationalizations of the mid-1970s.8% in the 1970s. including manufacturing. Two wars with India in Second Kashmir War 1965 and Bangladesh Liberation War 1971 and separation of Bangladesh adversely affected economic growth.97 2.91 2.
the dual impact has shocked Pakistan's economy. Page | 5 .4 billion. The War on Terror has created great instability and led to a decline in FDI from a height of approximately $8bn to $3.5-4%. it would represent an overcoming of the present crisis wherein growth is a mere 3. The revenue generation increased to become $13 billion and attracted foreign investment of $8. Although less than the previous 5 year average of 7%.Impact of IMF on Pakistan Economy THE ECONOMY TODAY Pakistan raised back its Foreign Reserves to a handsome $16. Pakistan’s exports increased to $18 billion. The EIU estimates that inflation should drop back to single digits in 2010. The middle term however may be less turbulent. Exceptional policies kept Pakistan's trade deficit controlled at $13 billion. with gaping trade deficits. Combined with high global commodity prices. depending on the political environment.5bn for the current fiscal year. and that growth should pick up to over 5% per annum by 2011. high inflation and a crash in the value of the Rupee. Since the beginning of 2008. it may have to seek external funding as Balance of Payments support. For the first time in years. Pakistan’s economy has a downfall due to war on terror. which has fallen from 60-1 USD to over 80-1 USD in a few months.4 billion by October 2007.
305 b Rs.Impact of IMF on Pakistan Economy Economic indicators INDICATORS GDP GDP PPP GDP per Capita Income Revenue collection Foreign reserves Exports Textile Exports Stock exchange Foreign Direct Investment Debt servicing Literacy rate Development programs Poverty level 34% 24% _ _ $ 700 m $ 7.05 t 1999 $ 75 b $ 270 b $ 450 2007 $ 160 b $ 475.880 b Page | 6 .5 b $ 11.520 b _ _ Rs.2 b $ 75 b at 14.3 b $1085 2009 $ 185 b $580.7 b _ _ Rs.5 b $ 5 b at 700 points $1b $ 16.4 b $ 18.6 b Rs. 708 b Rs.5 b $ 5.4 b $ 10 b $ 19.22 b _ $ 56 b at 9.19 b $ 14 b $ 18. 1.45 b _ _ $ 4. 549. 80 b 26% of GDP 53% Rs.000 points $ 8.6 b $1250 65% of GDP 45% Rs. 990 b Rs.000 points $ 5.5 b $ 925 2008 $ 170 b $ 504.
Impact of IMF on Pakistan Economy FACTORS AFFECTING ECONOMY o o o o o o o o o o o o o o Growth and Investment Manufacturing Agriculture Fiscal development Monetary credit Inflation Capital market Trade and Payments Domestic and External debt Education. Labour force and Employment Poverty Transport and Communication Energy Page | 7 . Health and Nutrition Population.
It also provides financial and technical assistance to its member countries on their request ORIGIN To cope with the monetary problems that arose during the World War two a conference was held on July 1. 1944 at Bretton Woods. The balance of quota is paid to the IMF in the national currency of the member country. CAPITAL AND ORGANIZATION The capital of the IMF consists of the aggregate of the quotas allotted to member countries. Page | 8 . it also looks after the global financial system. In this conference the Article of Agreement was drawn up and it was signed by 29 countries. the headquarters of the Fund are located in a country which happens to have the highest quota of capital of IMF. By observing exchange rates and balance of payments.Impact of IMF on Pakistan Economy INTERNATIONAL MONETARY FUND The International Monetary Fund is an international organization. Every member country appoints one Governor to participate in the meetings of the Board of Governors. There are 21 members in the Board of Directors. The head office of the Fund is at present located in Washington. (a) The Board of Governors and (b) The Board of Directors. whichever is less. There are two bodies to run the management of the IMF. in gold. The fund started its operations in May 1946. According to the Fund Agreement. Seven of them are permanent members. Its registered office is in Washington DC and present 185 countries are its members. Number of suggestions was proposed. IMF is responsible for ensuring the stability of the International Monetary System. leading finally to the establishment of an International Monetary Fund. The Board of Governors formulates the general policy of the Fund. New Hampshire. while fourteen are elected from amongst the remaining members. Each member pays either 20 percent of quota or 10 percent of its entire gold and dollar holdings. The quotas as of member countries of the IMF are normally revised once every five years.
IMF decides on the quota for each member. 8.A. A sort of economic war was going amongst the majority of the countries of the world. Each member country of the IMF is assigned a quota. which involves adjusting quota shares to better reflect the relative weight of member countries in the world economy and enhancing the voice and participation of low income members within the institution. in July 1944 to prepare a plan to root out the economic causes leading to the outbreak of war. 4. To ensure stability in foreign exchange rates. Salient Features: 1. To promote international trade. 7. One of the most important elements is governance reform. 3. 2. To establish system of multinational trade and payments system. the IMF's unit of account. To promote investment of capital in backward and under developed countries. During the closing years of war an international monetary conference was held at Bretton Woods in the U. To bring about international monetary cooperation. 5. To help member nations to achieve balanced economic growth. 6. richer countries have larger quota. based broadly on its relative size in the world economy and characteristics. To eliminate exchange control.Impact of IMF on Pakistan Economy OBJECTIVES OF IMF There was complete lack of monetary cooperation amongst the countries of the world after the First World War. Page | 9 .S. Quotas are denominated in Special Drawing Rights (SDRs). SOURCES OF FINANACING FOR IMF The IMF is working on wide-ranging reforms to make sure it meets the needs of its member countries. The Bretton Woods Plan was divided into two parts (1) the establishment of IMF and (2) the setting up of World Bank IMF started functioning on the 1st march 1947. To eliminate of to reduce the disequilibrium in the balance of payments. In fact the Second World War broke out primarily on account of these economic causes.
Impact of IMF on Pakistan Economy US. then members can borrow up to 3 times the amount of its quota. They are calculated by a formula. The Fund also helps the member countries to remove the long period disequilibrium in their balance of payments. INDIVIDUAL FINANCING BY IMF Basically 25% of the country’s quota may be used. Quotas also determine how much each member can borrow from the IMF when in need of aid. FACILITIES FOR POOR COUNTRIES Most of the IMF's loans to low-income countries are made on concessional terms. The Fund tenders advice to the member countries on economic and monetary matters. provide 44% of the total quota US has largest voting power 17.09%. In order to do so the country (in need) present plans for reform to Executive Directors. Page | 10 . FUNCTIONS OF IMF There are three important functions of the Fund. because it is in a position to do so in view of its special quota. by signaling that a country's policies are appropriate. If these plans are sufficient for the Executive Directors. An IMF loan also encourages other lenders and donors to provide additional financing. They are intended to ease the pain of the adjustments these countries need to make to bring their spending into line with their income and to promote reforms that foster stronger. Quotas are reviewed every 5 years by the IMF. 3. the IMF grants the member a loan. 2. having largest economy. The Fund helps the member countries to eliminate or at least to minimize the short period disequilibrium in their balance of payments. sustainable growth and poverty reduction. If this still is not sufficient. under the Poverty Reduction and Growth Facility. 1.
This is the job of the World Bank and the regional development banks. The IMF also participates in debt relief efforts for poor countries that are unable to reduce their debt to a sustainable level even after benefiting from aid. 7. under its Articles of Agreement. The success of a country's program is assessed against the goals set forth in the country's poverty reduction strategy. Improvements in short term disequilibrium in balance of payments. diversify their export or other sectors. Establishment of a Monetary Reserve Fund from which foreign exchange requirements of various are met. Gains of Gold Standard. 6. Check in competitive currency devaluation. The IMF's endorsement of their policies can make this easier. It does not—and. No interference in domestic economic affairs. ADVANTAGES OF THE FUND 1. concessional loans. 2. Some low-income countries neither want nor need financial assistance from the IMF. 3. Setting up of multilateral trade and payments system. it cannot—provide loans to help poor countries build their physical infrastructure. but they do want to be able to borrow on affordable terms in international capital markets or from other lenders. Page | 11 .Impact of IMF on Pakistan Economy The IMF is not a development institution. and the IMF's assessment can be made public if the country wishes. 5. Stability in foreign exchange rates. or develop better education and health care systems. and the pursuit of sound policies. Under a mechanism introduced by the IMF in 2005—the Policy Support Instrument—countries can request that the IMF regularly and frequently review their economic programs to ensure that they are on track. 4.
Inadequate representation to developing countries. Page | 12 . No solution of the liquidity of problem.Impact of IMF on Pakistan Economy CRITICISM OF THE FUND 1. 7. 4. Quota fixation is on unscientific basis. 6. 12. 8. 10. 11. 3. No provision for automatic revaluation of currency. Provision of inadequate resources to developing countries and erosion of sovereignty of poor nations. Inability to remove exchange controls. 9. No elimination of multiple exchange rates. Limited scope of the functioning of the Fund. Failure to tackle the problem of petro-dollars. 5. No success in securing exchange stability. 2. Free convertibility of currencies not attained. Discriminating treatment.
Pakistan has not enjoyed a smooth relationship with the IMF. 0IMF is providing financial assistance to Pakistan since 1952. In February. other lending agencies also provided money to Pakistan and vice versa. On the one hand. In Year 2008-09 7. In November. Since the beginning. it has provided direct bilateral support to Pakistan in order to cope with its macroeconomic imbalances like balance of payment deficits. On the other hand. they not only analyze the economic conditions of their members but the borrower will also have to frame its policies in the light of directions given by IMF authorities. 1. And what were the conditions imposed by IMF and what were the consequences of these loans.Impact of IMF on Pakistan Economy PAKISTAN AND IMF Pakistan joined IMF on 11th July 1950. In July. In Year 2010 Page | 13 . The IMF also influences policies of lending countries to a great extent. Since 1980. because of its dissatisfaction with the economic performance of Pakistan. The question in mind is that when and how much was lent to Pakistan by IMF. This is evident from the fact that whenever Pakistan enjoyed good relations with the IMF. Pakistan borrowed 1193 million dollars from IMF. The IMF credit rating of a borrowing country is taken very seriously by other donor agencies. In Year 2003-04 6. 1980 2. According to 1977 statistics. 1994 4. In December. 1997 5. the IMF has indirect influence on lending by other donor agencies. the fund has made four main agreements with Pakistan as. IMF ASSISTANCE TO PAKISTAN When IMF is advancing loans to their members. 1988 3.
8% of GDP went to 9. But the budget deficit in 1980-81 was 5. Page | 14 . The overall fiscal deficit of federal and provincial govt. clean water. The foreign debt burden which was 31% of GNP in 1987 would be decreased to 25% in 19990-91.1% in 1985-86. According to this agreement: 1. IMF prepared a package of policies for Pakistan and chalked-out a time-table for the required changes. The biggest condition against this loan was to reduce the fiscal deficit. The current account deficit of BOP which was 4% of GNP in 1987 was to be reduced to 3. The imports be liberalized 3.5% of GNP in 1990-91. they showed dissatisfaction over our efforts to reduce fiscal deficit. 2. IMF provided $1. electricity. For this purpose they asked the Government to increase the prices of public enterprises like fertilizers. IMF set the following conditions for Pakistan: 1. 3. controls through the regulations and privatization. 2. Prices should increase and subsides be withdrawn 4. When Government of Pakistan again asked IMF for assistance. and 2. which was 8. IMF gave the assistance of $900 million to Pakistan in order to remove the deficit in BOP by redressing structural problems. AGREEMENT OF 1988 During the period of 1988-91. Accordingly. The indirect taxes should increase and subsidies should be withdrawn.7 billion for the period of 1980-83. The custom duty on imports be decreased and sales and exercise duty be imposed in the country 5.3% of GNP in 1988-89.8% of GDP in 1990-91. Rupee be devalued by 20% in terms of dollar 2. educational and health services. The industrial sector is liberalized from Govt.7% in 1989-90.5% of GDP in 1986-87 would be reduced to 4. cement.Impact of IMF on Pakistan Economy AGREEMENT OF 1980 Under this agreement.
Then the govt.Impact of IMF on Pakistan Economy 4. Government of Pakistan’s dependence remains the same and efforts for new agreement started. AGREEMENT OF 1994 The aim of this agreement was to reduce the financial deficit to 4% of GDP in 1994-95 and to 3% of GDP in 1995-96. 1997. As the price of gas. while the price of social services will be increased. Then the finance minister re-negotiated with IMF. while the amount of loan was raised from $250 million to $850 million. water. But the govt. 1995. 7. This led to create a suspension in the attainment of loan of $1. Page | 15 . will control their expenditures. In this agreement IMF stressed upon early conditions. The federal and provincial govt. Government of Pakistan neither reduces its expenditure nor raised tax revenues. of Pakistan failed to complete the conditions of IMF.8% of GDP in 1994-95 and the target for 1995-96 was set at 5% of GDP. Against it. of Pakistan made some efforts but little success was attained. This means that the budget deficit could not be decrease appreciably. 6. a new agreement took place between Pakistan and IMF where the fiscal deficit was stipulated at 4% of GDP for 1996-97. The govt. The budget deficit which was 8. instead of February. the agreement was extended to September. failed to meet these conditions. The budget deficit was 5. But this agreement was renegotiated in December. The IMF failed to learn any lesson from Pakistan’s experience. electricity. The tax structure will be changed. 1997. The tax-base will be expanded and tax collection system will be improved.4 billion could be raised. The bank borrowings be reduced to 1% of GDP. As a result. As a result.6% of GDP. education and health services should be increased. while non-bank borrowings to 3. The system of general sales tax will be introduced. this target was set at 5% of GDP for 1994-95 and 4% for 1995-95. 5.7% of GDP in 1990-91 decreased to 8% GDP in 1992-93. The main objective of this agreement was to reduce fiscal deficit.
to restore overall economic stability and confidence through a tightening of macroeconomic policies. they will not get any loan from IMF.Impact of IMF on Pakistan Economy AGREEMENT OF 1997 In 1997.6 billion loan for Pakistan to support its program to stabilize and rebuild the economy while expanding its social safety net to protect the poor. AGREEMENT OF YEAR 2008 As a result of elections of 18th February 2008. The IMF's Executive Board has approved a $7. Not only trade deficit had gone to $20 billion. IMF has associated its tranche ($280 million) with the issue of IPPs. Government of Pakistan applied many suggestions but still they failed to impose sales tax at retail level. AGREEMENT OF YEAR 2003-04 Most projects with IMF were suspended because Pakistan could not complete their conditions.47 billion. 1997 to 30 June. The IMF issued a long structure. and it will have to reduce them. This period is of three years from 1st July. Pakistan exports grew during this period. IMF suggested conditionality’s in order to bring structural changes in the economy. It means that unless govt. Pakistan demanded a lot of amount as financial aid but IMF sanctioned $500 million on January 14. and second. But first time in 2004.7% of GDP. yet WB is of the view that Pakistan has to face the problem of internal and external loans. "The Government's program has two objectives: first. Pakistan got the entire amount which was sanctioned by IMF on PRGF which is $1. 1999. 2000. At that time. to do so in a manner that ensures social stability and adequate support Page | 16 . The rupee was devalued in 1998. Foreign reserves had touched at lowest level. the country was entrapped into economic difficulties. The trade was liberalized. IMF prepared a ‘Medium Term Policy Framework Paper’ for the growth and the stabilization of the economy of Pakistan. Although IMF and other financial institutions of the world have shown satisfaction over macroeconomic stability of the country. but the fiscal deficit also reached 4. General Musharaf had to surrender and Asif Ali Zardari became the president of Pakistan. of Pakistan settles the issue with IPPs.
Impact of IMF on Pakistan Economy for the poor during the adjustment process. The authorities' program for the coming 24 months envisages a number of additional steps: o The fiscal deficit. will be brought to down from 7. and eliminate central bank financing of the government. Page | 17 .9 percent of GDP. o Expenditure on the social safety net will be increased to protect the poor through both cash transfers and targeted electricity subsidies.4 percent of GDP in 2007/08 (starting July 1) to a more manageable 4." said Juan Carlos Di Tata.1 billion will be made available by the IMF immediately to strengthen the reserve position. excluding grants. And the regular monitoring of the economy by the IMF will show how the macroeconomic objectives set by the Government are being met and whether they need to be adjusted in the light of changing circumstances. The fiscal program for 2008/09 envisages an increase in spending on the social safety net of 0. This fiscal adjustment will be primarily achieved by phasing out energy subsidies and strengthening revenue mobilization through tax policy and administration measures. The program includes measures to improve monetary management and enhance the SBP's bank resolution capacity.3 percent in 2009/10—in line with what it was three years ago. The Pakistan authorities have already taken some difficult steps to achieve these objectives: energy subsidies have been cut and the interest rate has been increased to tighten monetary policy. and avoid the use of public resources to support the stock market. bring down inflation to 6 percent in 2010. the IMF mission chief to Pakistan.6 percentage points of GDP to 0. $3.2 percent in 2008/09 and 3.6 billion loan. Of the $7. o The State Bank of Pakistan (SBP) will act on monetary policy to build its international reserves.
o IMF to Provide $450 Million in Flood Aid to Pakistan.6 billion Stand-By Arrangement for Pakistan that was agreed in November last year. September 2. o Pakistan and IMF to look at need for emergency financing. 2010 o Pakistani team in Washington to discuss country's economic prospects after floods. IMF funds to support the authorities’ emergency response.2 billion. Directors agreed to increase lending by $3. AGREEMENT OF YEAR 2010 August 24. The Board reviewed progress under a $7. after a request from the Pakistan government to meet the country’s increased balance of payments needs resulting from higher oil prices. The International Monetary Fund is meeting with Pakistani government officials in Washington to evaluate the economic impact of devastating floods Page | 18 .2 billion to fund priority spending and help the government provide assistance to nearly three million people displaced by military operations and a difficult security situation.Impact of IMF on Pakistan Economy AGREEMENT OF YEAR 2009 The IMF’s Executive Board agreed to increase lending to Pakistan by an extra $3. 2010 o o o o Floods will have significant economic impact. During the August 7 discussion. o Reconstruction costs expected to run into billions of dollars. Dialogue with IMF continues on existing $11 billion program.
This natural disaster will have an important effect on the country’s economy. I will ask the IMF Board to approve $450 million in emergency assistance to be made available this month. and resulted in a worsening of the fiscal situation. Page | 19 . which have affected about one-fifth of Pakistan’s land mass and left millions homeless. severely impacted its economic outlook. It has caused serious damage to the country’s infrastructure. “In response to this. “The IMF announced it would provide around $450 million in new emergency financing to Pakistan to help the country cope with the economic impact of this summer’s massive floods.Impact of IMF on Pakistan Economy that have left millions homeless and to discuss ways in which the IMF can help in the recovery.” said IMF Managing Director Dominique Strauss-Kahn.
A major section of the society in Pakistan is of the opinion that the loan has been procured at terms which will do more harm than good to the economy. The Pakistan government has pegged its economic growth at 4.5 percent of the GDP by the end of the current fiscal year has been given. The rate may vary between 3. while the subsidy on electricity have been withdrawn by June 2009. 6. International Monetary Fund (IMF) has made public the binding clauses incorporated in the finalized agreement for $7. IMF has released the strings attached to its Pakistan credit.e. IMF. The target for Pakistan’s economic growth for the next fiscal year has been set at 5 percent.51 per cent.Impact of IMF on Pakistan Economy CURRENT IMF LOAN FACILITY FOR PAKISTAN Pakistan has decided to borrow $7. on the other hand has a more pessimistic estimate of 3. IMF 23 months long loan program conditions spread over a document containing 24 pages said that Pakistan would have to raise its national growth rate to 7 percent and bring down the inflation rate to 5 percent by 2012. while the target of keeping the foreign current account deficit restricted to $10.6 billion from the International Monetary Fund (IMF) to save its sinking economy. while that of inflation at 13 percent. Pakistan's finances have not only been plagued due to the current financial crisis but also due to a shaky political system. which binds the government of Pakistan not borrowing any more during the current fiscal year from the State Bank of Pakistan. The loan will be extended over a 23 month period and needs to be repaid between the financial years 2011-12 and 2015-16. As on date. As a part of the agreement. terror campaigns and soaring oil and food prices.6 billion loan extended to Pakistan.3 percent for the current fiscal year.5 percent. After minor changes in the 11-point agenda of the International Monetary Fund (IMF). the loan carries a variable interest rate based on the market conditions. the Pakistan government has agreed to gradually impose the Central Excise Page | 20 . Pakistan’s foreign exchange reserves were less than $7billion which might have landed the country in a situation wherein it cannot honor its foreign debts. Pakistan thus becomes the first Asian country to be bailed out by the IMF ever since the current global meltdown began. They contend that this bailout loan will bring with it more wretchedness for the people in general and industry in particular.51 per cent and 4.6 billion i.
6 billion to help Pakistan. freezing of non-development expenditure under the defense budget for the last three quarters of the current financial year. ending subsidy on gas and electricity.or more from foreign currency accounts.5 billion to $2 billion for adjustment of the loan installments and maintenance of the balance of payments during the current financial year. the IMF and Pakistan have agreed to impose capital value added tax (VAT) and a withholding tax on withdrawal of every Rs. devaluation of rupee.Impact of IMF on Pakistan Economy Duty (CED) on services and agriculture sectors at the rate of eight to 18 per cent in place of the General Sales Tax (GST).provision of supplementary grants to government departments. 20 per cent reduction in non-development expenditure of civil departments and federal ministries.000/. The major conditions accepted by the Pakistan government included changes in the Islamic Development Bank loans and differentiation between loans and grants. Page | 21 . the IMF will be informed at the time of the issuance of credit line by any international financial institution. Pakistan has no option but to seek the IMF assistance package because under the IMF pressure on the Friends of Pakistan. uniformity in the inter-bank and open market dollar exchange rate and stoppage of government financial intervention in stock markets. But the IMF wants to release $2 billion for repayments in the first six months after reaching the agreement for saving Pakistan from default and another $500 million for the stability of the national economy he said. There has been a series of meetings between IMF and Pakistan government discussing some points from which eleven have been accepted with slight changes. including the World Bank or immediately after it the official said. the IMF wants increase in the mark-up rate on the already approved 600 million World Bank loan and grant he added. no friendly country has so far agreed to extend loan to Islamabad to meet its repayment obligations. For this too. increase in mark-up rate of banks and on interbank transactions. Under the conditions accepted by the government. The government wants the IMF to provide $3 billion and another $1. While in 2010. the Pakistani currency will also be devalued after slight changes in the discount rate and exchange rate will be decreased officially by six to seven per cent. Despite all the tough conditions. Finally in November 2009. non. 25. objections and differences. the IMF approved a loan of $7. In view of the IMF demand.
particularly oil etc. themselves have a huge role in the way things are running in Pakistan now. the dependence on IMF may go down. rather than placing it on the IMF. But we should be prepared to pay more in the form of taxes and reduces imports. the state of Pakistan’s economy is not just the fault of the IMF. They have widened the gaps between the incomes. Like every other institution the IMF while giving a loan will no doubt put conditions on its money. he is supposed to meet certain conditions and agree to the time period in which the loan has to be paid back. With Pakistan having one of the lowest tax to GDP ratios in the world. it should come as a shock that we have to depend on loans and grants from other countries or institutions. If our fiscal deficit and trade deficit decreases then we should not go to IMF for financing. The IMF program has led to increase the charges of gas. from not trusting the government to put the money into right use to simply not wanting to pay them. we do not need anyone else to tell us that the tax to GDP ratio needs to be raised. no country should complain about these conditions. But this is not all because of IMF. But it is not true. we are responsible for it. It is about time that Pakistan accepted the brunt of the blame itself.Impact of IMF on Pakistan Economy EFFECTS OF IMF PROGRAMS IMF authorities think that the problem of Pakistan increased because of noncompliance with the IMF programs. None of the problems that our country faces today can be removed or reduced. Pakistanis. The absolute poverty has increased which has promoted unsocial activities. The imposition of sales tax and cut in tariff rates on the advice of IMF has greatly affected the incomes of the poor and middle class earners. CONCLUSION Nevertheless in the views of an analyst. Even if an everyday person goes to a bank and asks for a loan. Pakistanis themselves are responsible for the state the country is in. Furthermore. unless and until the nation rises in unity and moves forward to the path of development and prosperity. Therefore. The reasons for not paying taxes vary. electricity. petrol and telephone. Page | 22 .
wordpress.org http://www.Impact of IMF on Pakistan Economy SUGGESTION Pakistan is a country having many natural resources in it.wikipedia. but we can handle the problem by relying on ourselves.imf.encyclopedia. We should be self sufficient. Sincerity is the key to success so we should be sincere with our country and work hard for its development.org/wiki/Economy_of_Pakistan Page | 23 . By applying these things we don’t need to depend on IMF. If we have financial crisis.org/external/pubs/ft/ http://en. BIBLOGRAPHY o o o o o http://economicpakistan. we should rely on ourselves. we should not beg for aid from IMF and World Bank or any other organization. The government should make such opportunities that foreign investment is attracted towards us.com http://www.com http://www. We should pay more taxes and we should try to remove corruption from every department of our beloved homeland.imf.
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