Impact of IMF on

Pakistan Economy

17221598-144(Neha Durani)
17221598-154(Saira Irtaza)
17221598-145(Fizba Tahir)
Impact of IMF
on Pakistan
Economy
17221598-144
Content of topic
 INTRODUCTION OF FOREIGN DEBT
 WORLD BANK & IMF, COMPARISON, OBJECTIVES OF IMF ,IMF ASSISTANCE TO
 PAKISTAN
 WHY PAKISTAN TAKE FOREIGN LOANS
 IMF CONITIONALITIES
 ECONOMIC IMPACT OF IMF CONITIONALITIES
 Conclusion
Foreign debts
 AN OUTSTANDING LOAN THAT
ONE COUNTRY OWES TO
ANOTHER COUNTRY OR
INSTITUTIONS WITHIN THAT
COUNTRY.
 FOREIGN DEBT ALSO
INCLUDES DUE PAYMENTS TO
INTERNATIONAL
ORGANIZATIONS SUCH AS THE
INTERNATIONAL MONETARY
FUND (IMF).
WORLD BANK
THE WORLD BANK IS ONE
OF THE WORLD’S LARGEST
SOURCES OF FUNDING AND
KNOWLEDGE TO SUPPORT
GOVERNMENTS OF
MEMBER COUNTRIES IN
THEIR EFFORTS TO INVEST
IN SCHOOLS AND HEALTH
CENTERS..
THE WORLD BANK IS AN
INTERNATIONAL ORGANIZATION
OWNED BY THE 184 COUNTRIES.
IMF
 THE INTERNATIONAL MONETARY FUND
(IMF) IS AN ORGANIZATION OF 186
COUNTRIES, WORKING TO HELP THE
DEVELOPMENT OF GLOBAL MONETARY
COOPERATION, SECURE FINANCIAL
STABILITY, FACILITATE INTERNATIONAL
TRADE, PROMOTE HIGH EMPLOYMENT AND
SUSTAINABLE ECONOMIC GROWTH, AND
REDUCE POVERTY AROUND THE WORLD.
 THE IMF’S FUNDAMENTAL MISSION IS TO
HELP ENSURE STABILITY IN THE
INTERNATIONAL SYSTEM.
COMPARISION
WORLD BANK IMF

WORLD BANK PROVIDES • THE IMF AIMS TO STABILIZE

SUPPORT TO DEVELOPING
THE INTERNATIONAL
MONETARY SYSTEM AND
COUNTRIES. MONITORS THE WORLD’S
IN ORDER TO INVEST IN SCHOOLS CURRENCIES.
AND HEALTH CENTERS, PROVIDE
WATER AND ELECTRICITY, FIGHT
DISEASE AND PROTECT THE
ENVIRONMENTS
OBJECTIVES OF IMF
 PROVIDE LOAN TO THE MEMBERS FOR REMOVING UNFAVORABLE BALANCE OF
PAYMENT.
 DETERMINE THE VALUE OF CURRENCY OF MEMBER COUNTRIES.
 DETERMINE THE ECONOMIC POLICIES’ MAIN CONTENTS OF MEMBER’S
COUNTRIES.
 TO MAKE PLAN FOR INCREASING PER CAPITA INCOME OF MEMBER COUNTRIES.

 TO COLLECT MONEY FROM MEMBER COUNTRIES IN THE FORM OF FUND OR

RESERVES.(1.36b)
 LATEST OBJECTIVE IN IMF IS
THAT IT WILL SUPPORT 3 TRILLION DOLLARS UNDER
HIS BUDGET FOR DECREASING THE PRESSURE OF 2000 RECESSION.
 PAKISTAN ECONOMIC INSTABILITY:

Pakistan is facing economic challenges vis-a-vis fiscal

deficit, trade deficit and current account deficit. The list
is rather long. Deteriorating law and order situation,
corruption, flawed decisions of inept leadership,
energy shortfall and prohibitive cost of energy have
made many industries unviable. In the last budget, the
government reckoned 4.3 per cent economic growth,
but with extensive gas and load shedding it was rather
naïve to set the unrealistic target.
 WHY PAKISTAN HAVE TO TAKE FOREIGN
LOANS (IMF):
 Pakistan has been suffering
from
economic crises since its
inception

 To keep the balance of

payments in check and to meet
the financial obligations
government of Pakistan
unfortunately always resort to
take loans

 Since the late 1980s, it has

been imposing various
conditions on successive
governments increasingly
crippled by debt servicing
IMF ASSISTANCE TO PASKISTAN
• Pakistan joined IMF in 1950 as newly established country was facing
fiscal problems since its creation in 1947 from British India.
• Pakistan and IMF have signed 22 agreements for loans since 1958
comprising of 10 programs under PRGT (Poverty Reduction Growth
Trust) and GRA (General Resource Account) of IMF and 12 bail outs. The
current 39-month bailout plan has raised the figure by $6 billion and is
the 13th time Pakistan has gone to IMF since 1980’s. A part of the
bailout will be utilized to pay back policy loans from the World Bank and
the Asian Development Bank
IMF ASSISTANCE TO PAKISTAN
Year Loan

1958,Decembe $25000
r
1965,March $37000

1968,October $75000

1972 $84,000

1973 $75,000

1974 $75,000
IMF ASSISTANCE TO PAKISTAN
1977 $80,000
1980 $349,000+$730,000

December 1988 $194,480+$382,410 

 September 1993 $88,000

1994 $123,200+172,200
December 1995 $294,690
 1997 $265,370 and US$113,740
2000 $50000
2001 $10,000
2008 $172000
2013 $144000
2019 $1 billion
Title and Content Layout with Chart
Series 1
2019

 1997

1995

1994

 1993

1988

1980

1977

1974

1973

1972

1968

1965
$0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000

Series 1
Loan which Pakistan still not have paid
• US$5.765 billion to 
International Monetary Fund
IMF Conditions on Pakistan
17221598-154
 IMF Conditionality
 IMF conditionality is the set of
policies or conditions that IMF
requires in exchange for financial
resources
 IMF act as a money lender of all
Developing Countries
 Main Purpose is to
Macroeconomic Stability

18
IMF Conditions

19
IMF impose Following
main Conditions on
Pakistan
 Introduction of the Central Excise Duty
on Service and Agricultural Sector
 Reduction in the expenditures on Public
Sector Development Program
 Devaluation of rupee
  Freezing of non-development
expenditure under the defense budget

20
Continue…
 Removing Price Controls and Subsidy
 Increase in markup rate of banks
 Increase the stability of investments
 Privatization
 Enhance rights of Foreign Investors

21
Introduction of the Central Excise Duty on Service
and Agricultural Sector

Central excise duties are levied by the Union Government on commodities

manufactured or produced within the country and consumed within the country

22
Reduction in the expenditures on Public Sector
Development Program
 Public Sector Development Program
The PSDP is an important public intervention to spur private investment by
way of developing human capital and improving the infrastructure.
 2020-2021
The government has set the Public Sector Development Program (PSDP) for
the next financial year at Rs650 billion(June 13,2020)
 2018-2019
Rs1356 billion was projected for PSDP but Rs1650 billion was spent.

23
 Devaluation of Rupee

Devaluation means reduction in the value of currency with respect to goods,

services or other monetary units with which that currency can be changed. For
example suppose the exchange rate between rupee and dollar is Rs 50 = 1$. If
this exchange rate is fixed Rs 55 = 1$then it is called the devaluation of rupee.

24
Exchange Rates

Current 2020
1$ = 165.80 PKR
2019 (highest dollar rate)
1$=148. 10 PKR

25
Freezing of non-development expenditure under the
defense budget

 Non development expenditure

It is that expenditure which is incurred on non-development activities of the
Government in the form of provision of general services of the Government.
Example: administrative expenditure, interest payments, defense, external
affairs etc.
 Defense Budget(June 13,2020)
Pakistan on Friday reveal Rs7.14 trillion budget for the fiscal year 2020-21 with
defense allocations amounting to around Rs1.3 trillion, which is almost 12 per
cent higher than last year, Samaa News reported.

26
Removing Price Controls and Subsidy
 Subsidy is a sum of money granted by the state or a public body to help an
industry or business keep the price of a commodity or service low.
 A subsidy is a benefit given to an individual, business, or institution, usually
by the government. ... The subsidy is typically given to remove some type of
burden, and it is often considered to be in the overall interest of the public,
given to promote a social good or an economic policy.
 A government regulation establishing a maximum price to be charged for
specified goods and services, especially during periods of war or inflation.
 Subsidies of outgoing year Reduced from Rs349.5 billion to Rs209 billion
for upcoming year.

27
Increase in markup rate of banks

The lending rates of banks are based on the "cost of funds" and the.
"interest rate spread" needed to achieve a bank's profit goals. The
interest rate spread is simply the margin, or markup, between bank
costs and what banks charge for their loans.
 In June 2020 markup rate in the banks of Pakistan is 7.00%

28
 Increase the stability of investments
 Stability is extremely important for any successful investor. For most
people this means living with your means or not spending more then you
earn. Every time you over spend you are taking potential investments away
from yourself.
 Increase the stability of investments by Foreign Direct Investment(FDI)
 Pakistan's FDI has increased by 289.0 USD million in February 2020

29
Privatization

 The transfer of ownership, property or business from the government to

the private sector is termed privatization.
 Privatization of all our part of state run organizations
For Example:
In 1988, the sugar mills of Pakistan Industrial Board were privatized at a
throw away price of Nawaz Sharif.

30
Enhance rights of Foreign Investors

 For Foreigners create ease of doing businesses

 Improving Governance and fight Corruption

31
Act For Foreign investor rights
 This Act may be called the Foreign Private Investment (Promotion and
Protection) Act, 1976. It shall come into force at once. It shall apply to all
industrial undertakings in Pakistan having foreign private investment
established with the approval of the Federal Government after the first day
of September 1954.

32
Impact of IMF Loan on
Pakistan’s Economy

Presented by:
 Fizba tahir
17221598-145
  The primary purpose of taking loans from the
IMF

• Pakistan’s Government wants to stabilize its deteriorating economy,

exchange rates (Currency of one country exchange with other
country) and balance of payments (All economic transaction record
between countries), however this relief is short-term and usually yields
a new crisis in long-term.
• IMF provides huge amount of loans for such purposes, which seems very
lucrative and attractive offer at first sight for a short-term perspective.
• In 2019, when economic conditions of Pakistan worsened, they went to
IMF for twenty-second time and got a loan of 6 billion of 3 year
agreement with some conditions.
IMF CONDITIONALITIES AFFECT PAKISTAN’S
ECONOMY
Increase in GST (good and
]] services indirect
tax).Burden on consumer and producer.
1 Increase in prices

Removal of subsidies negative impact on

Pakistan Economy Growth
2
Depreciation in Currency that also
increases inflation. Reduces consumer
3 purchasing power. .
 INFLATION
 THE IMF SINK POOR
COUNTRIES INTO POVERTY DUE
TO INFLATION
 THE RISE IN THE PRICE OF OIL
CAUSED FOOD CRISIS
 INFLATION LED TO INCREASE
THE CHARGES OF GAS,
ELECTRICITY, PETROL AND
TELEPHONE
 MONOPOLY MARKET
STRUCTURES ( Single seller and
many buyers of a product, raise
prices, make profit)
 INFLATION RATE

Year Inflation rate in %

2020 11.2%

2019 6.74%

2018 3.39%

2017 4.15%
“SAKEEB SHERANI OF THE ROYAL BANK OF SCOTLAND TOLD A
MEETING ORGANIZED BY PAKISTAN'S CENTRE FOR RESEARCH AND
SECURITY STUDIES THAT “THE IMF PACKAGE WILL CAUSE UP TO
THREE MILLION JOB CUTS IN DEFERMENT SECTORS AND PUSH
ANOTHER 5.6 MILLION TO 7.5 MILLION PAKISTANIS INTO POVERTY
OVER THE NEXT TWO YEARS."
 FISCAL DEFICIT

Fiscal deficit is when government’s total

expenditure exceed to the revenue that it generates.
 Reduce fiscal deficit is a condition against this loan.
 Tax structure will change(Increase in taxes).
 Reduce fiscal deficit mean cut government spending
on the people , organization who can buy and can
invest more.
 Fiscal tightening can cause lower economic growth.
 Pakistan fiscal deficit is 7% (increase in tax). And in
2018 it was 8.9%.
  PRIVATIZATION
 NEGLET SOCIAL INTERSET
 PERPETUATING POVERTY
AFFECT ON GOVERNMENT
SPENDING( save money).
INCREASE UNEMPLOYMENT IN
PAKISTAN
 DECREASE IN GDP(Gross Domestic Product):

• Final value of a product and services produced and Sold within the
country during a specified period of time( one year)
• It is used to measure economic progress of a country.
• If GDP is rising economy is in good shape and moving forward.
• If GDP is falling the economy is in trouble.
• Pakistan GDP decreases due to conditions of IMF. It is due to higher
unemployment and lower level of industrial production , declining in
business revenue. And also if we import goods from other countries
Pakistan GDP decreases and other country GDP increases.
 CURRENT GDP OF PAKISTAN

Year GDP growth in percentage

2020 Expected to reach 5.53%

2019 5.8%

2018 5.83%

2017 5.55%
  INCREASE MARKUP RATE OF BANKS

The lending rates of banks are based on the "cost of funds" and the.
"interest rate spread" needed to achieve a bank's profit goals. The. interest
rate spread is simply the margin, or markup, between bank. costs and
what banks charge for their loans.
Production of goods decreases that effect Pakistan economy negative
relationship with GDP.
Un employment increases.
Economy will not grow (less product produce and demand increases)
Current markup rate of bank is 7%
 IMF CONDITIONALITIES POSITIVELY
AFFECT PAKISTAN’S ECONOMY
• IMF provide financial support when the member country needs it and
helps to resolve crises.
• Stable foreign exchange rate.
• Reduces unnecessary expenditures of a government.
• IMF also impose necessary reforms such as fiscal responsibility, control of
money supply, attacking corruption. these policies may cause short term
pain but are essential for preventing future crisis and long term
development.
• Depreciation in currency increases the exports good effect on BOP.
 IMF CONDITIONALITIES POSITIVELY
AFFECT PAKISTAN’S ECONOMY
• Acting as a reservoir of the currencies of all the member countries from which
a borrower nation can borrow the currency of the other nations.
• promote international trade.
• Exchange of goods or services internationally. This allow more competition
and the competition result in more affordable products for the consumer
• Increase living standard, foreign exchange earnings, export increases and
Pakistan economy will grow.
• Increase in interest rate leads to increase in exchange rate. Which causes to
decrease in inflation because appreciation in country currency.
 Conclusion
• If we look in to the long run impact of
IMF loan, there is a negative
relationship between government
borrowings and GDP. It will have
positive impact on our exchange rate.
The government should play its role in
increasing the pace of economic growth
in Pakistan. In short-run we can see
benefits and quick transformation but in
the long-run we have to pay.