Macro economics

Types of IMF
The IMF has two types of lending
• loans provided at non-concessional interest rates
• loans provided to low-income countries on concessional terms
 What is non concessional loan?
• These are loans, typically used in relation to MDBs, with a market-based interest rate and
substantially less generous terms than concessional loans.
• An interest concession is a reduction, compared with commercial interest rates, in the interest rate
charged on a loan taken out.
 History of Pakistan and international
monetary fund
• In 1958, Pakistan went to IMF for bailout.
• IMF lent out US$25,000,000 to Pakistan on standby arrangement basis on 8 December 1958.
• Pakistan again went to IMF in 1965. IMF gave US$37,500,000 to war-torn nation on 16 March
1965. 
• Pakistan again went to IMF for third time for balance of payment problems for which IMF
gave US$75,000,000 on 17 October 1968.
• In 1971, after the Bangladesh Liberation War. This war caused huge loses to Pakistan.
• Pakistan got loan of US$84,000,000 in 1972, US$75,000,000 in 1973
• and another of US$75,000,000 in 1974 to meet its growing needs.
• In 1977, another standby arrangement of US$80,000,000 was made on urgent basis.
• an extended facility of US$349,000,000 was reached in 1980.
• Pakistan withdrew another US$730,000,000 as Pakistan was already part of US cold war against 
Soviet Union.
• Another era started
• As democracy came back to Pakistan but old ways to handle economy poorly continued. 
•  Benazir Bhutto government withdrawn US$194,480,000 as standby arrangement
• and another US$382,410,000 in shape of structural adjustment facility commitment on 28
December 1988.
• Poor handling of economy continued by her government as she got loan of US$123,200,000 under
the extended fund facility and another US$172,200,000 were borrowed on 22 February 1994.
• As per few sources, this was the most corrupt government in the history of Pakistan
• In 1997, Nawaz Sharif came to power
• Sharif government went to IMF on urgent basis for the first time and reached an agreement to get
two amounts of US$265,370,000 and US$113,740,000 on October 20, 1997.
• In 2008, Yousaf Raza Gillani received a $7.6 billion loan from the IMF
• In 2018, Imran Khan became Prime Minister of Pakistan.
• they arranged friendly loans from Saudi Arabia, United Arab Emirates and China to avoid tough
IMF conditions.
• In 2019, when economic conditions worsened, they went to IMF for the twenty-second time for a
loan of US$1 billion.
• IMF gave loan based on conditions such as hike in energy tariffs, removal of energy subsidy,
increase in taxation, privatization of public entities and fiscal adjustments to the budget.
 Facilities given to Pakistan by IMF
• Financing from the IMF will contribute to easing the pace of adjustment, as well as to restoring
macroeconomic stability and investor confidence.
• The loan supports the authorities' program, which has two key objectives:
(i) restoring macroeconomic stability and confidence in the economy through a significant tightening
of macroeconomic policies
(ii) ensuring social stability and adequate support for the poor.
• The authorities believe the program is well-designed and adequate to address the current economic
challenges.
• In Pakistan's case, a tightening of monetary policy was necessary to restore confidence::
• in the Pakistani rupee, help rebuild international reserves, and ensure that the domestic financing
requirement of the government is met through market placements of government securities
• The increase in interest rates in mid-November 2008 benefited domestic savers and reduced the
implicit subsidy received by borrowers.
• also helped reduce inflation, which helps the poor.
• The Government’s program targets a reduction in the budget deficit to more sustainable levels.
• seeks to achieve this reduction by raising revenues and restraining expenditures in 2008/09, including
by phasing out fuel and electricity subsidies and better prioritizing development spending.
• Fund staff is more concerned about aggregate spending and the revenue targets than their detailed
composition.
• The IMF-supported program does not envisage a new tax on agricultural income.
• Pakistan is paying the same rate as other countries that have stand-by arrangements.
• Large loans, i.e., credit above 200 percent of a member’s quota carry a surcharge of 100 basis
points above the regular rate of charge,
• Based on today's interest rates, the average charge that Pakistan would pay when it has the full
amount of $7.6 billion outstanding is about 3 percent
 Current situation
• agreed to revive a bailout package for Pakistan,
• providing timely relief as the high global price of energy imports pushes the cash-strapped country
to the brink of a payment crisis.
• An IMF statement late Wednesday said its staff and Pakistani authorities had reached an agreement
on policies under review of the global lender's Extended Fund Facility (EFF) Program for
Islamabad.
• The staff-level agreement, if approved by the IMF board, will bring total disbursements under the
program to about $4.2 billion.
• Finance Minister Miftah Ismail said in a tweet that Pakistan "will soon receive" an initial tranche
of $1.17 billion.
• "Pakistan is at a challenging economic juncture. A difficult external environment combined with
procyclical domestic policies fueled domestic demand to unsustainable levels," said Nathan Porter
• The IMF statement noted that its board would also consider an extension of the EFF program until
the end of June 2023, and whether to add nearly $1 billion.
• Pakistan needs at least $41 billion in the next 12 months to repay debt and fund imports, according
to a Bloomberg news agency report