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Empirical and Descriptive Analysis of IMF Loans: A Case Study of Pakistan

Research · June 2020

DOI: 10.13140/RG.2.2.22023.42407

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 Empirical and Descriptive Analysis of IMF Loans:

A Case Study of Pakistan

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 Abstract

Developing countries like Pakistan seeks for financial assistance in order to fulfil their
deficits. IMF is one of the largest financial institution who give loans to countries who need it.
This research has studied the IMF role and the effects of IMF conditions on the economy of
Pakistan. To carry out this research, time series data from 1976 to 2018 has been taken from IFS
and World Bank Database. ARDL estimation technique has been followed. The results concluded
that there is negative and insignificant relationship between GDP and IMF loans in the long run.
The short-term dynamic shows that the speed of going to equilibrium is -1.55.

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Table of Contents
Title.......................................................................................................................................................... i

Abstract .................................................................................................................................................. ii
Table of Contents................................................................................................................................... iii

1 INTRODUCTION .................................................................................................................................... 1
1.1 Introduction ................................................................................................................................... 1
1.2 Statement of the Research Problem ............................................................................................... 3
1.3 conditions that IMF imposed on Pakistan ....................................................................................... 3
1.4 objectives of the study ................................................................................................................... 4
1.5Organization of the Study ............................................................................................................... 4
2 LITERATURE ......................................................................................................................................... 5
3 METHODOLOGY AND PROCEDURE....................................................................................................... 6
3.1 List of Variables .......................................................................................................................... 6
4 EMPIRICAL ANALYSIS AND DISCUSSION ............................................................................................... 7

4.1 Empirical Analysis ...................................................................................................................... 7

4.2 Discussion ................................................................................................................................ 12
4.2.1 Arguments against IMF..................................................................................................... 13
4.2.2 Arguments against Pakistan own System .......................................................................... 15
5 RESULTS AND RECOMMENDATION .................................................................................................... 17

5.1 Results ..................................................................................................................................... 17

5.2 Recommendation .................................................................................................................... 17
References ............................................................................................................................................ 18
List of Tables ......................................................................................................................................... 21

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1 Introduction

1.1 Introduction:

Basically, Economies are trying to find and determine the factors of economic growth. There
are numerous factors that has positive and negative relation with the economic growth. Developing
countries are struggling economies. They need financial assistance for progress. After the world
war 2, In 27 December 1945, IMF came into existence. (About of IMF, 2018) A great many people
think about the IMF as an establishment that gives crisis credits to nations that have wound up in
troubles, either as an outcome of poor monetary strategies or through outer conditions, for
example, a sudden drop in item costs, or a budgetary emergency in a neighboring nation.
Consequently the nation is obliged to force difficult gravity arrangements, for the most part
including decreases of spending plan deficiencies, through spending cuts or expanded income (tax
collection), an ascent in loan costs to lessen swelling, and a modification of the conversion standard
(a cheapening). It is presently a practically widespread monetary organization, having developed
from the 44 states spoken to at the 1944 Bretton Woods meeting to 189 nations today. Presently it
incorporates pretty much every economy of the world. (There are just a couple of special cases:
Cuba, North Korea, Taiwan.). The IMF is possessed by the administrations of its part nations,
spoken to through a Board of Governors. The Governor for every part nation is generally the
Minister of Finance or occasionally the Central Bank Governor (on account of the United States,
the Secretary of the Treasury). The function of IMF is to provide financial support to countries
who are unstable. The IMF has described itself as the organization of 189 countries that help them
in financial stability, employment growth, foster world monetary corporation and improve
international trade (International Monetary Fund, 2018). When the sun is shining, no countries
turn their self for borrowing. Countries do borrow when their economy is performing not well.
They finance their public expenditure and their budget deficit.

Developing countries like Pakistan has always faced depraved economic situations. From the
day of independence, Pakistan has felt the need of the assistance. Pakistan became the member of
IMF in 1950 and approached for loan for the first time in 1958 but the loan cancelled soon after
because of the political instability. The most recent loan taken by Pakistan is in 2013 of $6.6
billion. Pakistan has a long relationship of 68 years till now and has taken loans for 21 times.

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Pakistan has taken loans for SBA1, ESAF2, EFF3 and ECF4 basis. IMF and Pakistan has worked
on reforms to stabilize the economy and to lay down the pillars of sustainable growth (IMF
assistance: Talks with Pakistan focus on policy priorities, reforms, 2018). These loans have not
facilitated Pakistan and still Pakistan is facing instability in economy. IMF conditions and bad
policies has also had high pressure on Pakistan. Their bad policies and the mismanagement in the
economy is compelling Pakistan to take more and more loans. Now Pakistan is in circular debt
condition. Pakistan debt has been increasing very rapidly from the last three decades. Controversial
IMF has often depicted as it is a heartless organization who lends money to poor countries and
imposed bad policies and forces them to sunk further in poverty.

The significance of this study is the controversial nature of the IMF behavior towards the
developing economy. IMF has been criticized for nourishing the developed economies. Their
policies predictions, imposing conditions and by force intervention in developing economies has
retarted their growth. Pakistan has a long relationship with IMF but still the economic situation
has not been improved. Pakistan is still in a very bad economic condition of high inflation,
unemployment, political instability, less growth rate. In addition, with this, the controversial
behavior of IMF has made us to do a deep study of the IMF role in Pakistan to find out its impact
on the economy.

IMF is in the headlines all-around the world. A lot of works has been done to find out the
effects of IMF on developed and developing countries. (Latif, 2005) (Ahmad, Khalid, & Noor,
2016) has also tried to find the impact of IMF in Pakistan but their studies was based on less

1
Stand by Arrangement: In an economic crisis, countries facing problem of balance of payment. IMF provide these
loan to help those countries and provide good policies to recover themselves. The Duration of SBA are flexible
between 12 to 24 months and sometime 36 months but not more than that.
2
Enhanced Structural adjustment facility(ESAF) commitment: It was a financial assistance from December 1987 to
1999 for poor countries. This program is than changed to Structural Adjustment Facility(SAF) which itself turn into
Poverty Reduction and Growth facility(PRGF). These loan are provided with a low interest of 0.5% payable after 5
and half years due in 10 years.

3
Extended Fund Facility(EFF): It is kind of assessment in which IMF provide loans to countries who are facing a
serious problem of BOP. Compared to SBA, these loans has longer engagement and repayment duration. (IMF
Extended Fund Facility, 2018)

4
Extended Credit Facility (ECF): Extended Credit Facility are given to those countries who have continuously BOP
problem for a longer time of period. This loan was created under the banner of Poverty Reduction and Growth
Trust(PRDT). All those countries who have poverty and growth issues are eligible for this loan.

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observation and was not studied deeply. This research has tries to find the effect of IMF on Pakistan
by deeply studying the IMF loans and its conditionalities.

1.2 Statement of the research problem:

Globally, some countries are poor, and they have economics issue. Developing countries are
always under the pressure of inflation, unemployment, budget deficit, low economic growth, low
living standard, bankrupt financial system and bad exchange rate. These developing countries does
not have money to carry out its habitual economic activities. They always seek for help from
developed countries and financial institutions like IMF and World Bank when their economy start
to fail. These financial assistance of IMF and WB help developing countries to became a developed
countries. The loans has also been proved fruitful to developed countries and some developing
countries. Pakistan is also one of the developing countries, who need financial assistance in tough
time. Pakistan is taking loans form IMF since 1958. IMF has providing financial as well as
technical assistance to Pakistan. Total debts of Pakistan has reached to Gross Public Debt of Rs
20872 Billions. These IMF loans hasn’t been successful to improve the economic growth. The
more we are taking loans the more we are doing negative economic growth. To find the reasons
behind this negative growth of Pakistan economy, we have to dig more deeply in finding the true
picture of the IMF. In this literature, we will try to find out, analytically as well as descriptively,
whether the IMF loans and their conditionalities are blessing for Pakistan economy or it is a curse
for growth of economy. And to provide the possible recommendation for a better economic
growth.

1.3 Conditions that IMF imposed on Pakistan:

Developing countries take loan for survival. IMF and World Bank are the two big financial
institution who provide financial assistance to developing countries. But before giving loans, these
institutions make some conditions for giving loans. Pakistan is the developing economy. From the
day of independence, Pakistan is the bad financial position because of wars. It need financial
assistance for growth. For this purpose Pakistan time after time resort to IMF for Help. Like other
countries, Pakistan also have to face some circumstances in the shape of IMF conditions. These
conditions are;

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 • Reducing the borrowing of government

• Higher the amount of taxes and lower spending

• Higher the interest rates to stabilize the currency.

• Allow failing firms to go bankrupt.

• Reduce government spending

• Structural adjustment

• Privatization

• Decreasing the barriers in the trade

• Increasing the prices of the Bills unit

1.4 Objectives of the study:

The Objectives of the study are:

➢ To investigate the impacts of IMF loans on Pakistan Economy.

➢ To do analysis of the conditionalities effects on economic condition.

➢ To provide recommendation for economic growth.

1.5 Organization of the study

The study has been organized in the below pattern.

Section 1: Introduction.

Section 2: Literature Review.

Section 3: Methodology and Procedure.

Section 4: Empirical Analysis and Discussion.

Section 5: Results and Recommendations.

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2 Literature review

IMF is one of the big financial institution and it is always in the headlines of the news and
Economists. It provides financial assistance to countries. IMF provide loans when economies are
struggling hard for stability. It provides bail out packages, poverty packages and other different
packages. But then question arises, how much this assistance has been fruitful or whether it is or
not. Different researches have different point of view. Some thinks that IMF role in the developing
economies has work as a main pillar. Countries do develop because of IMF Loans. Ahmad, Khalid,
& Noor, (2016) finds that Government borrowing are positively related to GDP. Fidrmuc &
Kostagianni (2015) took a general approach and found that IMF loans has positive relation to GDP
taking IMF loans variable as dummy. Bird & Rowlands (2017) examined IMF and concluded that
IMF has been prove fruitful in sustainable development of Low-Income Countries.

But some thinks that the IMF has only works for the developed countries. Their help with
the developing countries has not been prove successful. The assistance of IMF has worsened the
Economic growth of the countries. Dreher (2004) stated that IMF loans has no positive relation
with economic growth. Muhumed & Gaas (2016) in their study conclude that IMF assistance
produce very painful and destructive situation resulting in retarted growth and inequalities. Gilbert
& Unger (2009), the relation of IMF loans and income equality is negative. Doucouliagos &
Paldam (2007) has found that the overall effect of aids is negative.

Some thinks that IMF programs and conditionalities has neither positive nor negative effects.
Kean, Hoon, Yoong, Xavier & Siang (2015) stated that IMF conditionalities has neither positive
nor negative effects on economies.

The Conditionalities imposed by IMF on the recipient countries has also Bad impacts on
the economy. The influential interference of IMF in the economy hasn’t been prove fruitful as
well. These conditionalities and influential interference has made the situation much worsen.
UNLU criticize IMF of interference in recipient countries which is basic right of democratic
countries. Boockman & Dreher (2018) stated that world bank and IMF have good effect only in
short run while in long run it is of no good. Umer, Latif & Faheem (2015) stated that if countries
do not take loans in proper manner so they will become curse instead of blessings. In case of
Pakistan, IMF loans has made the situation worse.

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 The policies related to IMF loans are also very important for its effectiveness. Ahmed
(2012) criticize policy makers for their policies. Any country has not produced excellent result
from loose policies. The debts both internal and external is very important for growth of economy.
According to Hashmi (2017), no Financial institution can change the fate of economy unless they
tighten their own fiscal policies. O'Driscoll (1997) examined IMF policy in his descriptive research
and stated that policies that IMF is designing for developing countries are not backed by the past
policies of the developing countries. So, their relation becomes negative instead of positive.

IMF is a financial institution which comprise of board of directors. It contains both high
income countries and low-income countries. Voting shares are divided between them. Lombardi
(2005) viewed IMF loans from a different perspective. He pointed that low-income countries have
only 10% voting rights which made them difficult to get loans according to their desirability.

A famous statement of (Hunter & Schmidt, 2004) that a single study will not resolve a
major issue. In case of Pakistan we can see that there are few studies available in which we see
contradictory results. The conditions that IMF Imposed has not been studied well. There is a room
for further study in which we will find the empirical relation and effects of conditions on Pakistan
Economy.

3 Methodology and procedure:

This study involves both empirical analysis of the data of loans of IMF and descriptive
analysis of the conditionalities of IMF. For selection of variables different research papers and
articles has been read. From those articles we have derived IMF Loans as our dependent variable
and GDP as our independent variable. In addition to it, Exchange rate and Foreign reserves are
working as our control variable in the model. IMF Loans variable will show the inflow and outflow
of loans in Pakistan economy. We have taken GDP Per Capita instead of GDP because GDP Per
Capita also incorporate population and it is believed to be a better indicator of economic growth.

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3.1 List of Variables:

IMF Loans: The data is in million dollars.

GDP Per Capita (GDPPC): The data is in million dollars.
Foreign Reserves (FR): The data is in million dollars.
Exchange Rate (ER): The Data is in Pakistani Rupees per dollar.
The Data has been Collected been collected from International Financial Statistics and
World Bank Database. To carry out the empirical analysis, we used EVIEWS software. The test
that has been used is descriptive statistics of variables, Augmented Dicky Fuller Test for
Stationarity, pair wise correlation and Auto Regressive Distributed Lag Model (ARDL).

4 Empirical Analysis and Discussion

4.1 Empirical Analysis

Table 1
IMFLOANS GDPPC ER TR

Mean 123.4007 636.6328 47.58159 6538.884

Median 19.98 476.3812 41.11153 2117.469

Maximum 3031.24 1482.403 121.8241 22027.61

Minimum -2545.72 193.7766 9.9 684.1404

Std. Dev. 926.0648 383.4894 33.87009 6583.872

Skewness 0.542685 0.949729 0.559118 0.849014

Kurtosis 7.339907 2.500106 2.047764 2.280386

Jarque-Bera 35.8563 6.911954 3.864992 6.093713

Probability 0.00000 0.031556 0.144786 0.047508

Sum 5306.23 27375.21 2046.008 281172

Sum Sq.
Dev. 36019032 6176694 48181.69 1.82E+09

Observations 43 43 43 43

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 Table 2
Pair Wise Correlation
IMFLOANS GDPPC ER TR
IMFLOANS 1
GDPPC 0.07341 1
0.471326 -----
0.6399 -----
ER 0.061019 0.956676 1
0.391441 21.03929 -----
0.6975 0 -----
TR 0.195034 0.887534 0.867735 1
1.273276 12.33445 11.17888 -----
0.2101 0 0 -----

Table 2 shows that there is no problem of multicollinearity between the variables.

Before going to find the long and short run relationship, we have checked the stationarity of
variable. Dicky Fuller is the most common test for checking stationarity.

Our null hypothesis for this test is Ho: The series has unit root. And the alternate hypothesis
is Ha: The series has no unit root. The results for each variable are given below in table 3.

Table 3
Variable Name t-statistics Probability Remarks
IMF Loans -6.123173 0.0000 Stationary at level
GDP Per Capita -6.005975 0.0001 Stationary at 1st
difference with
constant and trend
Exchange Rate -4.433604 0.0054 Stationary at 1st
difference with
constant and trend
Total reserves -6.446707 0.0000 Stationary at 1st
difference with
constant and trend

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 So here we can see that the variables are not cointegrated at same level. So, we cannot run
johansen cointegration test to find the long run relationship between the variables. Instead we will
Auto Regressive Distributed Lag (ARDL) Model to find both long run and short run relationship.
The optimal lag has been selected by Akaike Information Criteria (AIC). Our Basic and ARDL
model has been given bellow.

Basic Model: 𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠 = ∝ + 𝛽1𝐺𝐷𝑃𝑃𝐶 + 𝛽2𝐸𝑅 + 𝛽3𝑇𝑅

ARDL Model: 𝑑(𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠 = 𝛼 + 𝛽1(𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠(−1)) + 𝛽2(𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠(−2)) +

𝛽3(𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠(−3)) + 𝛽4(𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠(−4)) + 𝛽5(𝐺𝐷𝑃𝑃𝐶(−1)) + 𝛽6(𝐺𝐷𝑃𝑃𝐶(−2)) +
𝛽7(𝐺𝐷𝑃𝑃𝐶(−3)) + 𝛽8(𝐺𝐷𝑃𝑃𝐶(−4)) + 𝛽9(𝐸𝑅(−1)) + 𝛽10(𝐸𝑅(−2)) +
𝛽11(𝐸𝑅(−3)) + 𝛽12(𝐸𝑅(−4)) + 𝛽13(𝑇𝑅(−1)) + 𝛽14(𝑇𝑅(−2)) + 𝛽15(𝑇𝑅(−3)) +
𝛽16(𝑇𝑅(−4)) + 𝛽17𝐼𝑀𝐹 𝐿𝑜𝑎𝑛𝑠(−1) + 𝛽18𝐺𝐷𝑃𝑃𝐶(−1) + 𝛽19𝐸𝑅(−1) + 𝛽20𝑇𝑅(−1)

Here “d” shows the Difference and “(-1) and so on” shows the lag. In ARDL Model

𝛽17IMF Loans(-1) + β18GDPPC(-1) + β19ER(-1) + β20TR(-1)

Shows the long run relation between the variables. The results are given below in table 4.

Table 4
Variables Coefficient Std Error t-statistics Probability
IMFLOANS (- -2.919288 1.151927 -2.53427 0.0214
1)
GDPPC (-1) -4.304923 2.394134 -1.79811 0.0899
ER (-1) -10.40824 48.44465 -0.21485 0.8324
TR (-1) 0.155755 0.177482 0.877583 0.3924

We check the serial correlation by LM Test and found the F-Statistics value to be 2.58 with
chi squared probability 0.0053 which means that there is no serial correlation between the
variables. The model stability has been checked by CUSUM Test and the “graph 1” clearly shows
that the model is stable. For checking the long run relationship, we run the bound test for finding
the long run relationship and we found that there is long run association between the variables
which means that these four variables move together in the long run. The coefficient values of the

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regression analysis there is negative and insignificant relationship between the IMF Loans and
GDP Per Capita.

The short run calculations are presented in 5. For finding the short run relationship we first
run the basic model through OLS and copied the values of residual and named it as Error
Correcting Term (ECT). After that we remove the long run variables from the model and use ECT
variable along with short term variables. The value of ECT is theoretically correct. The coefficient
value is -1.555416 which indicate the speed to long run equilibrium from short run. The bound test
shows that there is no short run relationship. Bound test results are given in below table 8. We
have also checked the model stability through CUSUM Test. As the Graph 2 clearly shows that
the model is stable. The LM test has also been run which shows that there is no serial correlation
which the probability value of 0.0734. Table 6 shows that the residual is normally distributed. The
results in table 7 shows that there is no problem of heteroskedasticity.

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 Table 5
Variable Coefficient Std. Error t-Statistic Prob.
C -42.2868 239.6581 -0.17645 0.8617
D(IMFLOANS (-1)) 1.035385 0.406169 2.549145 0.0191
D(IMFLOANS (-2)) 0.583912 0.389205 1.500267 0.1492
D(IMFLOANS (-3)) 0.225817 0.308574 0.73181 0.4728
D(IMFLOANS (-4)) 0.119942 0.314651 0.38119 0.7071
D(GDPPC (-1)) -2.16903 3.677746 -0.58977 0.5619
D(GDPPC (-2)) 4.185457 4.496441 0.930838 0.363
D(GDPPC (-3)) -1.26748 5.4131 -0.23415 0.8172
D(GDPPC (-4)) 1.696022 4.665538 0.363521 0.72
D(ER (-1)) 27.86166 105.1537 0.264961 0.7938
D(ER (-2)) 102.9821 100.3186 1.02655 0.3169
D(ER (-3)) 6.474501 97.966 0.066089 0.948
D(ER (-4)) -110.032 89.86294 -1.22445 0.235
D(TR (-1)) -0.19481 0.110733 -1.75924 0.0938
D(TR (-2)) 0.016263 0.137119 0.118604 0.9068
D(TR (-3)) -0.0597 0.093238 -0.64029 0.5293
D(TR (-4)) -0.05386 0.065453 -0.82295 0.4202
ECT (-1) -1.55542 0.574428 -2.70777 0.0135

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 Table 6
7
Series: RESID
6 Sample 1976 2018
Observations 39
5
Mean 2.24e-12
4 Median -16.85335
Maximum 787.8314
3 Minimum -956.4267
Std. Dev. 348.2326
2 Skewness -0.003939
Kurtosis 3.632951
1
Jarque-Bera 0.651120
0 Probability 0.722123
-1000 -800 -600 -400 -200 0 200 400 600 800

Table 7
Test of Heteroskedasticity
F-statistic 1.294815 Prob. F (17,20) 0.2877
Obs*R-squared 19.90987 Prob. Chi-Square (17) 0.2789
Scaled explained 12.19971 Prob. Chi-Square (17) 0.7879
SS

Table 8
Bound Test
F-Statistics 0.343280 0.8455
Chi-Squared 1.373122 0.8489

Table 9
LM Test
F-statistics Chi-squared
1.4346 0.2642

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4.2 Discussion:

Overview:

Form the day, when IMF came into beings, it helps countries with the financial assistance.
It behaves to try their best to help poor countries in one way or the others. Pakistan, from the day
of independence, is obtaining loans from IMF. It has gone to IMF for help 21 times. It has obtained
a lot of money of different types of activities. It has taken loans for bailout purposes and other
extended loan facility. But these loans haven’t stabilized Pakistan’s economy. There must be
something going wrong with the IMF loans or Pakistan own policies that the effects of the loans
are zero and it is making the situation even worse. There are few arguments that will clear the
defaults in IMF loans and Pakistan own policies.

4.2.1 Arguments against IMF:

First argument:

IMF is the biggest financial institution have 189 members. The countries representation in
the IMF in terms of share and quota is not reflecting the real structure of the world. According to
the share and quota, IMF gives more power to few countries and the rest got less power. The
strongest countries in IMF on this basis are US, Germany and some are the European Countries.
US got the highest power with 16.73 percent. Japan got the second position with 6.23 percent and
China got the third position with 6.16. Other countries share and quota power are given in the Pie
Chart below and complete list is in the table in last of the research.

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 Voting Power of Countries in IMF
0.4

16.7
23.2

6.2

2.3 5.4
2.6
4.1
2.7
6.2 4.1

21.3 3.1
2.3

United States Japan Germany

France United Kingdom Italy
Canada Rest of OECD China
india Russian Faderation Brazil
Rest of the world Pakistan

Source: IMF website

The share and quota of the rest of the world is 23.2 percent. Pakistan has only got 0.43
percent. This IMF division has been criticized by critics because it is based on nothing but
willingness of the west dominating system (Muhumed M. M., 2014). The countries with less power
have little influence on the IMF. Developed countries can easily influence IMF for loan with less
conditions and low interest rate. Pakistan has a very low voting power in the IMF. So, whenever
Pakistan has taken loans from IMF, IMF has put high interest rate with soon pay back and tough
conditionalities.

Second Argument:

First, IMF has faced failures for so many times and it has failed to design strategies and
policies for the countries in crisis. It is also one of the reasons for the ineffectiveness of the IMF
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programs. The policies design by the IMF is by the western experts, recommendations with their
financial intuitions and with their situations of problems. Those experts do not take the recipient
country situation which results in the failures of the programs. Second, these so called experts are
always putting burden on the poor peoples. The pressure of these debts and their interest are always
paid by the poor people of the countries. The IMF approach has always been failure to Pakistan.
For decades, Pakistan productivity and growth potential has been weakening IMF. IMF has eroded
governance and the capability of state and has created more conditions for rent seeking and
corruption (Haque, 2018)

Third Argument:

Whenever we receive loans from IMF, we are always forcing to accept their conditions for
loans. These conditions has always make the situation of the economy worsen. These conditions
are devaluating of the money, reduction in the budget deficit, increasing the interest rate. Other are
the reduction in the trade barriers and making price free of control. These conditions by IMF is
always making situation worse. Devaluating of money of the highly indebted country will make
the country even more indebted. By the increase in the value of the dollar, our economy will further
sink in the crisis. By decreasing the trade barriers, we will see an increase in the unemployment in
the country because the domestics goods are not compete able with the goods of the developed
countries. The increase in the prices of the utility bills and educational fees are a kind of taking
rights of living from the poor people. These condition of IMF on Pakistan is making the situation
of Pakistan even worsen.

Fourth Argument:

Trade Liberalization and Privatization is highly criticized by critics because critics things
that this step of the IMF is like serving the developed countries and increasing the poverty.
Privatization can cause monopoly in the economy. Similarly, IMF loans can also create the
situation of moral hazard.

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Fifth Argument:

The IMF loans has also affects the income distribution in the economy. The conditions by
the IMF have increased the income inequality in the country (Gilbert & Unger, 2009).

Sixth Argument:

“Lack of Transparency and involvement” IMF has also been criticized for their
involvement in the recipient countries. They take actions without knowing the actual reasons of
the crisis. They must first know the reasons of crisis and should know about the consequences.

4.2.2 Arguments against Pakistan own system:

First Argument:

(Baloch, 2018) Taking loans specially bailout loans is not the solution for the economy to
get developed. Every time we have taken loans, after the maximum duration of two years, we have
faced the need of taking another bailout loan. Our economy is on the high current account deficit.
It is because our imports are almost double as our exports. It is basically that for every dollar we
earn we give 2.2 dollars. We are highly indebted country. We borrow more to pay for the previous
debt and the cycle continues. So, taking loans is not the ultimate and only solution because the
debts burden is increasing day by day.

Second Argument:

Pakistan own leadership and the team of policies maker is weak. IMF has failed in
delivering the appropriate results, but the Pakistani technocrats has failed as well. We cannot
develop our country with the loans unless we make our system correct (Latif, 2005). In our
economy, we do not have the effective system to stop politician to withdraw money from economy
on the basis of corruption. It is because our nation has betrayed the people who are designed to
serve. The incompetency is also on the peak in our system.

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5 Results and Recommendation:

5.1 Results:

The conclusion of this research is that IMF has failed to do its job. On the basis of the
above arguments we can conclude that IMF is working for the developed countries and its aim of
helping poor developing countries is only left in the books. Their behaviors towards the developing
countries is not appropriate. The empirical results show that the relation between IMF loans and
GDP is negative. If we want to increase GDP Per Capita we must decrease IMF loans. These IMF
loans is nothing but just burden on the economy. Pakistan is sinking in debt and we are on the
stage where we take loans to give back loans and their interest payments.

5.2 Recommendations:

Pakistan has to focused on our own policies because our own policies is not supporting
economic growth. There are a lot of blunders in our economy. we should focus on over own
agriculture and industrial sector because we can only finance our budget deficit if we increase our
productions. The productivity of the people will worth mentioning that we should invest in the
human capital. We should develop our industrial sector which provide high employment and
increase the standard of the people. It also increases production and the national income. We
should develop a fare system that stop our politician to withdraw money from the economy and
do corruption. Stopping the corruption is a main step toward economic growth because through
corruption, money flow out from the economy and the economy will be in crisis. For the fulfillment
of this crisis we will take loan which will increase the amount of debts on over economy. And by
that way our economy will fail.

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 List of Tables Page No

Table No 1 ............................................................................................................................................... 7

Table No 2 ............................................................................................................................................... 8

Table No 3 ............................................................................................................................................... 8

Table No 4 ............................................................................................................................................... 9

Table No 5 ............................................................................................................................................. 11

Table No 6 ............................................................................................................................................. 12

Table No 7 ............................................................................................................................................. 12

Table No 8 ............................................................................................................................................. 12

Table No 9 ............................................................................................................................................. 12

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