 The New IMF Program and Implications for Pakistan

− The Executive Board of the IMF approved the Program on

September 4, 2013
− This is a 36 – month program under the Extended Fund
Facility (EFF)
− Total Amount : SDR 4.393 billion
or
US Dollar 6.68 billion
− Amount is 425% of Pakistan’s quota
− $ 540 million has been released by the IMF

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 Strict form of stabilization Program of the 1980s Vintage
­ ‘Stabilization First’
­ Growth Not on the radar of the Program
­ Experience of European Debt Crisis
­ Greece and Spain Crisis
­ G-20 Summit
­ Global leaders have recognized the importance of growth, Job creation, equality and social
development
­ Global leaders brought robust and ‘Job – rich’ growth which is inclusive, broad based and
sustainable at the centre of macroeconomic policies
­ The Managing Director of the IMF always attended G-20 Summit and was fully cognizant of
the developments
­ It appears that the consensus developed at the global level has not been percolated at the IMF
staff level
­ They approved a strict stabilization policy for Pakistan with all its disastrous consequences

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 Consequences for Pakistan’s Economy
­ Growth and Inflation out of focus during the program period
­ Economic growth averaged 3% per annum during the last five
years . It will continue to growth at the same rate during the
program period and the next five years.
­ It will be a lost decade of growth for Pakistan
­ Pakistan’s labour force is growing at an average rate of 3.5
percent per annum. With employment elasticity of 0.5 and
economic growth averaging 3.0 percent per annum, employment
growth will average 1.5 percent per annum. Hence, only 43
percent labour force entering job market will get job.
­ Another way to explain the phenomenon is that 2.5 million youth
entering the job market every year. To absorb all of them,
Pakistan’s economy should grow at an average rate of 7-8
percent per annum.

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 With economy growing at less than one half of the speed
required only 40-42 percent new entrants getting are getting jobs
 Pool of Unemployed has grown over the last five years and will
continue to grow during the next five years
 Under the IMF Program, the prices of electricity, gas, POL
products will rise substantially. Prices of essential commodities
will continue to rise
 The incomes of the people are not rising but at the same time
the prices of utilities and essential commodities will be rising
 It will have disastrous consequences for the poor and middle
class of the country and for the political leadership.

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 Building Foreign Exchange reserves is at the centre of the country’s monetary
and exchange rate policies.
­ SBP is required to purchase dollar from the inter- bank market
­ It is putting pressure on rupee. Rupee is likely to depreciate further with severe
consequences for public debt, POL prices, and gas prices. Overall inflationary
pressure will continue to build
­ It is a badly designed program and most likely not expected to be completed.
­ This program will have disastrous consequences for the people.
­ A balance should have been maintained between stabilization and growth.
­ Pakistan team failed to put forward their views on the pace of deficit reduction,
removal of subsidies and exchange rate policies.
­ When the economic team of the country is weak, this is the price the nation pays.

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 Concluding Remarks
 Serious Challenges for the economy in the next three-five years. People of Pakistan will
pay the price
 Human sufferings will increase
 Issues are not insurmountable
 Theses challenges can be addressed in a three year framework
 We need a strong economic team
 There is no dearth of good people in the country
 We need to get rid of the ‘Apna Admi’ culture
 What is required is honest, competent and patriotic leadership providing full support to
economic team
 We have the capacity to turnaround the economy in three-five years
 The country has faced serious challenges in the past but we recovered
 We have the capacity to recover from the ground zero once again, Inshallah