World Bank, IMF,

and its impacts on

PAKISTAN
BY: PARESH BHIMANI - 15014

World Bank & IMF:People often get confused betweenthe World Bank
(WB) and International Monetary Fund (IMF). Although
the IMFs functions complement those of the World
Bank, it is a totally separate organization. While the
World Bank provides support to developing
countries, the IMF aims to stabilize the
international monetary system and monitors the
worlds currencies.

World Bank:The World Bank isone of the worlds largest sources of funding and
knowledge to support governments of member countries in their efforts to
invest in;
Schools and health centers
Provide water and electricity
Fight disease and protect the environment etc.
The World Bank is an international organization owned by the188 countries.
IT IS NOT A BANK!

History of World Bank:The World Bank was created atBretton Woodsin 1944 to lend
toEuropeancountries to help them rebuild after World War II. It was the
world's first multilateral development bank, and was funded through the sale
of World Bonds. Its first loans were to France and other European countries,
but soon lent money to Chile,MexicoandIndia to build power plants and
railways. By 1975, the Bank also lent money to countries to help with family
planning, pollution control and environmentalism.

The current President of World Bank is Jim Yong Kim, He was elected on 27
April 2012.

Purpose of the World Bank:The Bank's goal is to "bridge the economic divide between poor and rich countries.
To achieve this goal, the Bank focuses on six areas:
1.

Overcome poverty through growth in the poorest countries, focusing on Africa.

2.

Offer reconstruction to poor countries emerging from war.

3.

Provide a customized development solution to help those middle-income countries overcome problems that could throw them
back into poverty.

4.

Motivate governments to act on preventing climate change, controlling diseases, (HIV/AIDS and malaria), managing
international financial crises, and promoting free trade.

5.

Work with the League of Arab States to improve education, build infrastructure and provide micro-loans to small businesses in
the Arab world.

6.

Share its expertise with developing countries, and its knowledge with anyone via reports and its interactive online database.

Voting rights:In 2010, voting powers at the State Bank were revised to increase the voice of developing countries:
The countries with most voting power are now the
United States (15.85%),
Japan (6.84%),
China(4.42%),
Germany (4.00%),
United Kingdom (3.75%),
France (3.75%),
India(2.91%),
Russia (2.77%),
Saudi Arabia (2.77%)
Italy(2.64%).

Criticisms on World Bank:One of the strongest criticisms of the World Bank has been the way in which it
is governed. While the World Bank represents 188 countries, it is run by a small
number of economically powerful countries. These countries (which also
provide most of the institution's funding) choose the leadership and senior
management of the World Bank, and so their interests dominate the bank.
World Bank Group's loans and aid have unfair conditions attached to them that
reflect the interests, financial power, and other factors. Like:
When it forced school fees on students in Ghana in exchange for a loan; when it
demanded that Tanzania privatize its water system; when it made telecom
privatization a condition of aid for Hurricane Mitch; when it demanded labor
"flexibility" in Sri Lanka in the aftermath of the Asian tsunami; when it pushed
for eliminating food subsidies in post-invasion Iraq.

Continued:The President of the Bank is always a citizen of the United States.

Lack transparency to external publics.
It is an instrument for the promotion of U.S. or Western interests.

World Bank & Pakistan:On July 11, 1950 Pakistan Joined World Bank.

1st Pakistan Project:

On March 27, 1952, World bank funded Railway Project of Pakistan. Total
Project cost was US$ 27.20 million. It consisted of three components:
1. Construction of railway Pakistan
2. Procurement of agricultural machinery
3. Construction of a natural gas transmission line from sui to Sukkur and from
Hyderabad to Karachi.

Continued..
World bank funded many projects in Pakistan like: Karachi power project, sui
gas project, west Pakistan education project, Industrial import project,
national expressways, water supply project, transport sector project, and
many other development projects.
Recently in 2014, world bank funded a project of ENHANCED NUTRITION
FOR MOTHERS AND CHILDREN. Total cost of that project is US$ 55.01
million. This project consists of four components:
1. Addressing general nutrition in women and children.
2. Addressing micronutrient malnutrition will support vitamin and mineral
interventions for women and young children.
3. Addressing the Development
4. Strengthening institutional capacity

Recent Loan from World Bank:On May 2, 2014:

The World Bank has approved a $12 billion loan for Pakistanthat will be
disbursed over five years.
The ministry said the money will target "energy,economy, (fighting)
extremism and education", with $1 billion being transferred toPakistanin the
next week.
The loan will carry a 2 percent interest rate and is repayable after 30 years.

World Bank overall impacts on

Pakistan:Impact on External Debt: External debt doubles than the last year debt.
Reduce Investment: As most of our NI goes in paying off debts we are unable to do
investments whereas, our private sector doesnt have incentives and they seize their investments.
While, public sector has little fund left.
Reduce Saving: Foreign capital inflows have been used entirely to finance consumption.
Moreover, the increase in foreign capital lower our saving by same magnitude. Thus, contribute
almost nothing to growth.
Negative Impact on Private sector: In order to finance deficits government push up
interest rates to such extent that the private sector would find it unaffordable to invest, and crowd
out.

International Monetary Fund

(IMF)
The International Monetary Fund (IMF), formed in 1944, is an organization of 186 countries, working to
help the development of:
Global monetary cooperation
Secure financial stability
Facilitate international trade
Promote high employment & sustainable economic growth and
Reduce poverty around the world etc.
Policy advice to governments and central banks based on analysis of economic trends and cross-country
experiences;
Research, statistics, forecasts, and analysis based on tracking of global, regional, and individual
economies and markets;
Concessional loans to help fight poverty in developing countries; and
Technical assistance and training to help countries improve the management of their economies.

History:The International Monetary Fund (IMF), like the World Bank, was conceived at
the Bretton Woods conference that sought to rebuild Europe after World War II.
Unlike the Bank, its goal was to help countries maintain the value of their
currencies without resorting to trade barriers and high interest rates.

Instruments:Stand-By Arrangements (SBA) The SBA is designed to help countries

address short-term BOP problems and disbursements are made
conditional on achieving the pre-set targets.The length of a SBA is typically
1224 months, and repayment is due within 3-5 years of disbursement.
Poverty Reduction and Growth Facility (PRGF) established in September
1999, by the IMF to make the objectives of poverty reduction and growth
more central tolending operationsin its poorest member countries.
Extended Fund Facility (EFF) was established in1974 to help countries
address medium- and longer-term BOP problems reflecting extensive
distortions that require fundamental economic reforms.

Continued:The Extended Credit Facility (ECF)succeeds the Poverty Reduction and Growth Facility
(PRGF) as the Funds main tool for providing medium-term support to LICs with prolonged
balance of payments problems. Financing under the ECF currently carries a zero interest
rate, with a grace period of 5 years, and a final maturity of 10 years.
Structural Adjustment Facility (SAF & ESAF) Under these facilities the Fund provides
resources on concessional terms to support medium term macroeconomic adjustment
and structural reforms in low-income countries facing protracted BOP problems. The
rate of interest on SAF and ESAF loans is 0.5 percent, and repayments are made in 5.5
to 10 years.

Special Drawing Rights (SDRs) The SDR is an international reserve asset,

created by the IMF in 1969 to supplement its member countries' official reserves.The SDR
is neither a currency, nor a claim on the IMF however it can be exchange for currencies in
two ways:
1) Arrangement of voluntary exchanges between members
2) Members with strong external positions purchase SDRs from members with weak
external positions.

Advantages to Pakistan of IMF

Financing:Financing from the IMF will contribute to :
Easing the pace of adjustment, as well as
To restoring macroeconomic stability and investor confidence.
Filling the external financing gap
Rebuild international reserves, and catalyze additional external assistance
from Pakistans development partners.
Additional assistance from donors is essential to finance the expanded social
safety net and
Allow for higher spending on development programs.

Criticisms:Many observers comment on the fact that the IMF has a one size fits all mentality, that
whatever the situation the IMF prescribes basically the same set of policies.
IMF does not adequately monitor the impact of its decisions on the poor.
Some of U.S. critics say, IMF is an incredibly wasteful organization that takes valuable funds
and pours it down the drain of developing economies whose leaders become fabulously rich
off the money without any intention of ever helping out anyone.
The IMF has no effective authority over the domestic economic policies of its members.

IMFs Assistance to Pakistan

An Overview
Since 1950 when Pakistan became member of IMF, almost twelve loan
arrangements (including the recent IMF loan of $5.3 billion EFF in 2013)
have taken place under various IMF facilities/programs.

Almost six loan arrangements were made during the regime of

Benazir Bhutto including

Standby arrangement,
Structural Adjustment Programs (SAP),
Poverty reduction and Growth Facility (PRGF) and
Extended SAP.

Continued:Three IMF loan arrangements were made during Nawaz Sharifs regime, one under
Zardaris regime and two standby agreement and PRGF under Musharrafs regime
to stabilize the economy.
It is important to note that in the tenure of last two decades, on average almost 44%
of the total lending amount has been drawn from the original 100% agreed because
of the failure of the government to act upon the strict measures determined by IMF.
For the first time in 2000, this tradition was broken in Musharraf regime when
Musharrafs government successfully implemented the conditions proposed by IMF
and successfully drew the whole lending amount of $1.3 billion.
It is also very interesting to note that only two loan arrangements were made during
the military regime whereas ten IMF agreements (including the recent IMF loan)
were made during the civilian regime.

IMF expected loan:Pakistan is expecting a loan of $1.1 Billion on

December 17 as Pakistan fulfilled IMF conditions before
the deadline which is November 30, 2014.

IMF impacts on Pakistan:In last decade, Pakistan followed structural adjustment program that lead to lowest growth rate in the history of
Pakistan.
Conditions of IMF were not good for the economy, These conditions totally changed the government infrastructure:
Reduce Subsidies
Private sector revive
Reduce Direct Govt. role in economy

Negative impact on Private sectors: For financing deficits government increased interest rate. Which was not
affordable by Private sector.
Faced Liquidity Problem: Pakistan income bigger part is always used to pay external debt which cause Pakistan
to face a lot of liquidity problems.
Rupee is depreciating: Taking loan from another country directly affects the currency value.
Pakistan always needs fresh foreign money for booting foreign exchange reserves and to ease down pressure on
pak rupee.

Thank you