The International Monetary Fund (IMF) has greenlit an additional disbursement of approximately US$700 million to Pakistan, subject to the IMF executive board’s approval. This financial injection aims to reinforce Pakistan’s ongoing stabilization program, supported by the IMF’s US$3 billion Stand-By Arrangement, bringing total disbursements under the program to around US$1.9 billion.
Yet, amidst these financial boosts, concerns linger over the effectiveness of the IMF program in stimulating Pakistan’s economic growth. Statistics reveal a sluggish economic trajectory, prompting questions about the program’s efficacy.
The journey to secure the IMF loan has indeed been protracted and challenging. The program, suspended since November 2022, remained in limbo until June 2023 when former Prime Minister Shahbaz Sharif intervened. His appeal to IMF Director General Kristalina Georgieva revived the nearly defunct IMF program, albeit with stringent conditions attached.
Under intense pressure, the government implemented new taxes across various sectors and significantly reduced subsidies on essentials to bolster revenue and preserve resources. Stringent measures were taken to strengthen the rupee against the US dollar, accompanied by substantial increases in petrol and utility prices. Petrol costs surged from Rs. 177 per litre to an alarming Rs. 277 per litre within five months, triggering hyperinflation.
The repercussions were profound, with the Consumer Price Index (CPI) soaring by 28.3% in July 2023, escalating further to 31.4% by September. Food inflation, a critical CPI component, spiked to an alarming 38% in August 2023. These price hikes inflicted hardship, especially on lower-income households in Pakistan, straining their budgets and making it increasingly challenging to meet basic needs.
Despite the political costs borne by the government of PDM and the interim government in implementing tough measures, these bitter pills are now proving beneficial for the country, as per government assertions.
The IMF staff level mission has commended Pakistan’s commitment to fiscal consolidation and its efforts to expedite cost-reducing reforms in the energy sector. They also praised the commitment to restoring a market-determined exchange rate and pursuing reforms in state-owned enterprises and governance to attract investment and spur job creation. Simultaneously, Pakistan remains steadfast in bolstering social assistance programs.
The IMF has lauded Pakistan’s steadfast execution of the FY23-24 budget and its ongoing adjustment of energy prices, resulting in renewed foreign exchange flows and a consequent reduction in fiscal and external pressures. Additionally, the IMF foresees a potential decline in inflation in the upcoming months as supply constraints ease and demand exhibits modest growth.
However, skepticism looms over the IMF program’s impact on Pakistan’s economic growth. Data reveals a sluggish GDP growth rate, indicative of underlying structural weaknesses within the economy. Despite the implementation of austerity measures and fiscal reforms, Pakistan’s economic performance remains subdued, prompting concerns among analysts and policymakers.
The IMF’s stringent conditions have also exacerbated socio-economic challenges, particularly for vulnerable segments of society. The reduction in subsidies and the surge in commodity prices have disproportionately affected low-income households, exacerbating poverty and inequality levels across the country.
In an effort to mitigate these adverse effects, the IMF has urged the government to ensure timely disbursements for social protection programs and expand cash transfer initiatives to support vulnerable families. However, critics argue that these measures may not be sufficient to address the deep-rooted socio-economic issues plaguing Pakistan.
Moreover, the IMF’s emphasis on fiscal consolidation and austerity measures has drawn criticism from some quarters, who argue that these policies may further constrain economic growth and exacerbate social disparities. There are calls for a more balanced approach that prioritizes inclusive growth and addresses structural bottlenecks hindering Pakistan’s economic development.
Despite these challenges, the IMF remains optimistic about Pakistan’s economic prospects, citing the government’s commitment to reform and its efforts to address macroeconomic imbalances. However, achieving sustainable and inclusive growth will require concerted efforts from all stakeholders, including the government, private sector, and civil society, to overcome the formidable challenges facing the country’s economy.
In conclusion, while the IMF’s financial assistance has provided much-needed support to Pakistan’s economy, concerns persist regarding its long-term impact and effectiveness in addressing underlying structural weaknesses. Moving forward, Pakistan must adopt a holistic approach to economic reform that balances fiscal consolidation with inclusive growth and social development to ensure a prosperous and resilient future for all its citizens.
