Title: Structural Adjustment and Lost

Decades: The Impact of IMF Programs on

Development in Pakistan
Abdullah Ahmad
NDU-BS/IR-22/F-022
Abstract

The International Monetary Fund (IMF) is an organization that provides help to the governments which
are facing difficulties in making payments to other countries. Structural adjustment measures that are
often associated with programs of the International Monetary Fund (IMF) have been difficult to
implement. This paper examines the historical impacts of IMF interventions in the Pakistan economy.
Discussed will be how these policies entrench austerity and hinder development. Furthermore, we look at
the opinions of dependency theorists on this matter.

Introduction:

Pakistan’s approach to the IMF and other international financial institutions directly affects the country’s
economic landscape. All the relationships have been very important. IMF projects have involved Pakistan
since the late 1950s. This project requires financing in order to overcome several financial hurdles.
However, these limitations have led to the development of the nation being a highly debated subject. In
this paper, the impact of IMF policies on the political and economic development of Pakistan has been
discussed. In this study, we shall use the dependency theory.

The Dependency Hypothesis was proposed in the mid-20th century. This argument posits that historical
and contemporary economic developments cause economic disparities across nations. This hypothesis
postulates that dependence may stem from the pressure of the developed countries and international
organizations on the less developed ones. This concept is crucial to comprehending Pakistan’s financial
relationship with the IMF and the global economy.

This paper attempts to provide a thorough analysis of Pakistan's IMF projects. Examined will be
the effects of these policies on important economic measures. The economic trajectory of
Pakistan will be thoroughly examined in this study together with its consequences within the
framework of dependency theory. There will be in-depth description of the investigation's
findings. With this study, we hope to add to the current conversation about how international
financial institutions affect the economies of underdeveloped nations.

History of IMF Programs in Pakistan

Pakistan and the IMF have had a fruitful and long-lasting cooperation. July 11, 1950, saw the
country admitted to the International Monetary Fund. In 1958, Pakistan received its first IMF
loan. After the 1980s energy and financial crises, Pakistan adopted IMF policy reform initiatives.

Pakistan joined the International Monetary Fund (IMF) in 1950 and has been the recipient of 24
programmes ever since. Pakistan is a member of the World Bank. Together with Argentina,
Egypt, and Ukraine, Pakistan ranks among the biggest IMF creditors2. Notwithstanding its
reliance on imports and precarious economy, Pakistan has been awarded 22 IMF loans.
Unfortunately, none of the 13 bailouts that Pakistan has received since the late 1980s have been
completed. Pakistan has not changed its fundamental structure significantly to cut spending or
boost revenue.

Pakistan’s Economic Situation Before and After IMF Programs

When the IMF started its programs, Pakistan's economy was quite erratic and heavily dependent
on imports. before the software is put into use. As soon as the nation was established in 1947, it
ran into financial problems and asked the IMF for help3. Still, depending too much on IMF
programs did not lead to long-term progress because important measures fell both during and
after IMF interventions. A political economy that seeks rent and fiscal mismanagement have
made this reliance even worse. By comparison, the successful models in Turkey and Indonesia
are very different5.

Pakistan's economy suffered greatly from International Monetary Fund (IMF) policies. Approval
of the EFF concept allowed the nation to better prepare for the COVID-19 pandemic. After the
authorities made extensive policy changes in reaction to the unanticipated shock, the economy
has been recovering quickly since summer 2020(6). Even still, disagreements over monetary
policy have hampered the transfer of about $1 billion4. Donors and lenders have asked Pakistan
to carry out important changes before getting more money.

As such, IMF programmes have a big impact on Pakistan's economy. They have created
dependency and failed to produce sustained growth even if they have provided some economic
stability. In the next parts, these processes will be investigated from the standpoint of
dependency theory.
Dependency Theory

Definition and Explanation

Recently developed in social science, dependency theory aims to pinpoint underdevelopment,

look into its causes, and offer remedies1. Dependency of poor countries on wealthy ones to
develop their economies is a hallmark of the global economic system. The concept of
"peripheral" and "core" economies shows that the exploitation of developing countries is the
source of industrialized countries' wealth.

Origins and Key Proponents

Latin America produced dependency theory in the 1960s. Debatable still is the epidemic's quick
spread to North America, Europe, and Africa. This idea was first presented in the late 1950s by
Argentine statesman and economist Raúl Prebisch. Dependency Theory has had many powerful
supporters. Those include Andre Gunder Frank, Wallerstein, Dos Santos, Osvaldo Sunkel, Celso
Furtado, Rodolfo Stavenhagen, Euzo Faleto, and Frantz Fanon.

Application to Pakistan’s Economic Situation

The relationship in Pakistan is unique to Dependency Theory. For many years, Pakistan has
looked to the IMF to help close economic gaps during times of need. Because of their reliance on
foreign industries, they have reached a condition of economic underdevelopment that is strongly
linked to their neocolonial lifestyle.

Dependency Theory was born out of a critique of Marxist and Western ideas about
modernization and growth. Examined is the relationship between the two ideas. It is going to
directly criticize structuralist and Marxist ideas. The way colonization affected the local political
and economic systems is how the theory has to be evaluated. The new socioeconomic structure is
next investigated to try and ascertain its origins in changes to the global capitalism system and
domestic adaptations.

The industrialized West purposefully underdeveloped emerging countries, according to Andre

Gunder Frank (1971), even though modernization theorists explain this as "internal impediments
to development." This viewpoint is especially relevant to Pakistan's economic situation because
the government has relied on IMF interventions to address a wide range of economic issues.

Dependency Theory can help to clarify Pakistan's economic ties to the IMF and the world
economy. At least theoretically, this is possible. Sections that follow will look at these processes
from the standpoint of dependency theory.

Impact of IMF Programs on Development in Pakistan

Analysis of Specific IMF Programs

Pakistan has worked along with the International Monetary Fund (IMF) since the 1950s. Both
sides of this collaboration have benefited. Pakistan has hidden economic decline using IMF
funding during cyclical growth phases. Current account imbalances and economic indifference
have forced Pakistan to ask for IMF help.

Participating in many IMF projects, the country has addressed a wide range of economic issues.
Support for 24 national projects has come from the International Monetary Fund2. Though
Pakistan has been granted 22 IMF loans, its economy is unstable and dependent on imports.
Thirteen bailouts that Pakistan has received since the late 1980s have mostly been left
incomplete. This is as a result of Pakistan's lack of significant structural changes to cut
government spending or raise more money.

Effects on Various Indicators of Economic Well-being

IMF policies have made the macroeconomic situation worse since they have never addressed the
underlying problems facing the economy. As compared to times when Pakistan did not take part
in IMF programmes, the GDP and industrial sector's average growth rates fell by 1.44 and 2.27
percentage points, respectively.

Rather, IMF policies affected the economy of Pakistan. They have boosted dependency and
slowed down long-term growth even if they have achieved some economic stability2. Once the
EFF concept was adopted, the nation was able to properly prepare for the COVID-19 pandemic.
The government's many policy reactions to the unexpected shock since the summer of 2020 have
made a strong economic recovery possible. Administration approval was granted for this.

Dependency Theory and IMF Programs

Analysis of Dependency Theory in the Context of IMF Programs

As was already mentioned, the Dependency Theory holds that both historical and current
economic actions are to blame for economic differences between countries. One theory holds
that the impact of more developed nations and international organizations on less developed
nations might lead to dependency. Pakistan is especially affected by this problem because of its
affiliation with the goals of the IMF.

For many years, Pakistan and the International Monetary Fund (IMF) have been at odds.
Pakistan has asked the International Monetary Fund (IMF) for financial support to deal with a
range of economic issues ever since it was founded. Pakistan is depending increasingly on IMF3
resources as the world economy grows more competitive. The funding plans give austerity steps
top priority in order to preserve the financial stability of the government. This promotes
responsibility with money. Still, these deals worsen Pakistan's economic disparity.

Dependency Theory and Pakistan’s Position in the Global Economy

Deficit countries in the world economy are the cause of underdevelopment, claims the
Dependency Theory. Most of the economically poor nations can provide the world market with
cheap labor and basic materials. Advanced economies can turn these commodities into finished
goods. Understanding Pakistan's financial link to the IMF and the world economy depends
critically on this idea.

Pakistan is the largest borrower of the IMF, together with Argentina, Egypt, and Ukraine5.
Opportunities for IMF financing come in several forms. Countries experiencing short- to
medium-term economic or balance-of-payments challenges might get financial assistance
through Standby Agreements. Long-term support is provided by Extended Fund Facilities. Both
capacities are usually linked with policy conditionality.

Application of dependency theory can clarify Pakistan's economic link with the IMF and the
world economy. At least theoretically, this is possible. In the next parts, these processes will be
investigated from the standpoint of dependency theory.

Case Study: The 2008 IMF Bailout in Pakistan

Background of the 2008 Bailout

The world financial crisis, subsidies to the energy sector, and a current account deficit left
Pakistan's economic future in 2008 unclear.

Economic Challenges Leading to the Bailout

Though world oil prices were rising, the government continued to provide significant support for
the energy industry in 2007–2008. The reason for this was worries about unstable economies. As
such, local consumers were disproportionately impacted by the 7.4% of GDP budget deficit1.
Still, when oil imports increased, overall imports increased as well, which put a strain on foreign
exchange reserves.

The IMF’s Role and Conditions

With the International Monetary Fund (IMF) a Standby Agreement (SBA) contract worth $7.6
billion in US dollars (or $10.44 billion in Singapore dollars at the current exchange rate) was
negotiated for a 23-month period. Through increased tax collections and eventually reductions in
energy subsidies, the International Monetary Fund (IMF) carried out budgetary consolidation.
The IMF advised Pakistan's central bank to reduce inflation and draw in investment by tightening
monetary policy and stopping to fund the budget deficit.

Outcome of the 2008 Bailout

The Pakistani foreign reserves stabilised in 2011. Pakistan's purchasing agreements were much
reduced as a result of the sharp drop in the world oil price. Though exports did not increase, the
current account deficit stabilised in January 2009.

The 2008 IMF lending had a big effect on Pakistan's economy. As so, it highlights the challenges
related to the execution of IMF programmes and the challenges that need to be overcome in
order to achieve economic benefits.

Case Study: Pakistan’s 22nd IMF Program

The economy of Pakistan is the focus of a thorough case study in the 22nd IMF program.
Restructuring the economy extensively is the aim of this project in order to address the present
economic issues.

Pakistan was awarded an SDR2,250 million Stand-By Arrangement (SBA) by the IMF, which is
equivalent to $3 billion or 111% of the quota. This helped with the economic stabilization
programs of the government. The main goal of the program was to carry out the FY24 budget,
which would support Pakistan in debt management and financial restructuring. This made sure
that important social spending was preserved . . Its objectives were to eliminate interference from
the outside and prevent foreign cash squeezes by returning to market exchange rates and a
working foreign exchange market. The program was particularly centered on energy
sustainability, state-owned enterprise governance, and climate risk management in an effort to
support structural reforms and disinflate. A strict monetary policy was also a part of it. In
addition, the programme attempted to address inflation through monetary policy.
The IMF and a recovering global economy ensured the longevity of the economic stability. The
foreign reserves remained fairly constant in 2011. Pakistan’s purchasing requirements were
curtailed due to the drop in international oil prices. Exports remained unchanged for the first year
and thus the current account deficit did not change as from January 2009.

Lastly, the 22nd International Monetary Fund program presents the analysis and useful
information about the effects of IMF programs on the Pakistan’s economy. This highlights the
fact that these initiatives are not easy to implement and the obstacles that have to be overcome in
order to capture the potential financial returns.

Conclusion

Summary of Findings

This paper seeks to assess the impact of IMF policies on the development of Pakistan. This
group has focused on the economic history of the country, IMF actions, and their impact on
economic indicators. The analysis of these processes also relied on Dependency Theory.

The 2008 rescue and the 22nd IMF program have demonstrated the challenges of implementing
these programs and of attaining their economic objectives. Alongside the chronic economic
issues of Pakistan, they have also exposed the veneer of stability of the IMF.

The following sums up the paper's conclusions:The following sums up the paper's conclusions:

The economy of Pakistan has been influenced by the programs of the International Monetary
Fund. Still, they have led to dependence and lack of sustainable growth. Even though they have
not expanded, they have become sustainable.

The difficulties in implementing these programs and achieving their economic objectives were
evident in the 2008 bailout and the 22nd IMF program.

However, despite the fact that IMF policies can provide some stability, they may hinder
development and result in dependence.

The results of the study will be crucial for Pakistan’s further political and economic strategies.
This calls for the implementation of economic measures and reducing the dependence on the
IMF. Consequently, the study reveals that while IMF activities may provide stability, they can
also restrain growth and create dependency.
Suggestions for Future Research
Concerning Pakistan's economic engagement with the IMF, a lot of work and research is needed.
Programs of the IMF with Pakistan are affected politically. Future studies should look into how
IMF programs have affected other developing nations and contrast Pakistan's experience with
those of others.

This paper thoroughly evaluated the effects of IMF policies on the economy of Pakistan. All the
same, this has shown the difficulties in putting these plans into practice and how urgently
economic reforms are required. The study also emphasized the need of looking at different
economic development routes and lowering dependence on the IMF.

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