Implications of the resumed IMF deal
The writer is an academic and researcher. He is also the author of Development, Poverty, and Power in Pakistan, available from Routledge
Forgetting the fiery rhetoric of the incumbent Prime Minster, as that of leaders before him, aiming to breaking the shackles of IMF lending, our economic pundits must be relieved to see the resumption of the stalled $6 billion IMF loan package. The dispersal of an immediate $1 billion will provide another lifeline to our struggling economy, but the consequences of the reform conditionalities attached to the IMF loan will not bring good news for the already struggling masses.
Pakistan remains amongst one of the most longstanding clients of the IMF. The IMF has been lending money to Pakistan since the 1950s and it has increasingly been providing the country expert guidance based on its own macroeconomic ideology. While the Pakistani government may not have paid heed to repeated IMF advice, that has not prevented this lending agency from giving Pakistan repeated loans. Yet, the stated objectives of helping Pakistan become a more prosperous country with a sustainable economy remains a distant dream.
The current $6 billion IMF loan was taken back in 2019 and it was meant to go on for 39 months. Yet, the loan was suspended in January 2020, when Pakistan resisted IMF recommendations to increase electricity prices and impose additional taxes. After several bouts of negotiations, this past November, an agreement was reached for the resumption of this same loan. The IMF’s decision to resume lending to Pakistan may be interpreted as a sign of the lender’s largesse, but this largesse will undoubtedly imply that Pakistan will need to cut its expenditure over the coming months.
The IMF generally wants borrower countries to create more balance between their income and expenditures in order to continue servicing their debts. However, the neoliberal conditionalities imposed by the IMF to spur growth are known to exacerbate inequalities and hit vulnerable communities. This is especially the case when a borrowing government is unable, or unwilling, to cut defence and other administrative costs, and it is then compelled to squeeze social sector spending to manage the fiscal deficit.
Like previous loans, the current IMF arrangement pushes a neoliberal agenda which includes standardised prescriptions such as an emphasis on privatisation, deregulation, limiting social sector spending, and raising taxes. In elite-dominated countries like our own, tax reforms do not include progressively taxing the rich or making sufficient efforts to take tax absconders to task. Rather, there is a further broadening of the tax base due to which poor people face the brunt of filling resource-starved state coffers.
According to the World Bank, more than 2 million people fell below the poverty line in 2019-2020 alone. Existing challenges, including Covid-19, the lingering drought across multiple districts of Balochistan, Sindh and southern Punjab, and runaway price-hikes of essential items, are now pushing more disadvantaged populations across the country to a point of destitution.
Civil society representatives foresee adverse impacts of IMF-driven spending cuts on the already marginalised, including women. Shirakat, for instance, recently conducted research in low-income areas around Islamabad and Pindi where women told them how their household’s access to healthcare has become more constrained, and how petrol price hikes have made public transport costs prohibitive. Steep rises in electricity bills have made using light at night difficult, and more girls are being taken out of school to manage household chores. Even violence within households has reportedly increased due to the additional financial stress of making ends meet. The current IMF arrangement is feared to exacerbate these stresses.
Published in The Express Tribune, February 18th, 2022.
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