The Impacts Of The IMF And Neoliberalism On Pakistan

The Impacts Of The IMF And Neoliberalism On Pakistan
In the late 1940s, Pakistan was physically decolonized; today, we remain subject to colonization of a different sort. Pakistan has completed 75 years of independence, and also 22 programs of the IMF, which means that every 2.5 to 3 years, we knock at the door of the IMF.

After the Great Depression of 1930 and the end of World War II, the International Monetary Fund (IMF) was formed in the wake of the Bretton Woods Conference, to enable international economic cooperation and to provide structural adjustment loans for its member countries, under some terms and conditions. With time, the IMF was consumed by neoliberal ideology in the guise of what became known as the Washington Consensus. Meoliberal policy consists of three components: deregulation, liberation, and privatization.

From the 1950s to now, Pakistan has been bailed out through 22 IMF programs, and the 23rd program of $1.25 billion is on the table.  According to most neoliberal economists, the only way to develop in the developing world is the implementation of neoliberal policies. Here questions arise: Pakistan has already been implementing neoliberal policies for the last 2 decades, but the economy is still in a stagnant condition. Why?

Let's discuss some neoliberal policies implemented in Pakistan. During the 1990s, there were more than 250 state-owned enterprises in Pakistan. From the 1900s to the present day, Pakistan has privatized 172 state owned enterprises, and now only 85 state-own enterprises exist in Pakistan.

The rationality behind privatization is that the labor in state-owned enterprises is less efficient, which leads to losses for the government; only the private sector has the potential to work efficiently. In the case of Pakistan, this rationality completely failed. In 2006, the government of Pakistan privatized Pakistan Telecommunication Company Limited (PTCL) by selling shares to the UAE government.

Among the 85 remaining state-owned enterprises, 51 enterprises are profit-earning enterprises, which shows that only 10% of state-owned enterprises are causing losses to the public sector.

The next policy IMF advocates for is trade liberalization, which calls for free inflow and outflow of goods and services. The demolition of trade tariffs and quotas are the main elements of free trade. Developing countries like Pakistan cannot tolerate trade liberalization, because comparative advantages in the production of commodities are low as compared to developed countries. Due to this, developing countries will face problem of current account deficits as only imports increase, and export remain constant and the countries become heavily import dependent.

During the 1990s, after the SAPs Pakistan has had an average growth rate of 5.6%, and before the program average growth rate was 9.8%, which clearly shows how trade liberalization under neoliberal paradigms badly affected the economy of Pakistan. During the 1987-88 SAF, during which the economy was opened to the outside and tariffs were reduced from 22% to 100%. This also largely contributed to urban unemployment. During 1990-91, urban unemployment reached 8.19%, from an original of 4.5% during 1987-88.

Neoliberal policies are not the only unique things about IMF programs. Whenever Pakistan approaches the IMF, the Fund advocates for policies which hurt poor people. Recently, the IMF has asked Pakistan to raise fuel and electricity prices to rescue the 23rd program, with the inflation rate in Pakistan crossing the 31% threshold during February 2023, which was the highest rate of inflation in the history of the country since 1974. With an increase in the price of fuel and electricity, inflation is expected to cross 40% during the month of Ramzaan. Increase in inflation is not a new phenomenon, as Pakistan has faced higher inflation rates after every SAP.

During 1988-89, before the implementation of SAPs, the average inflation rate in Pakistan was 6%, which rose to 12.7% in 1990-91 after the SAP. The IMF also asked the government of Pakistan to reduce subsidies and increase indirect taxes. Due to the reduction in subsidies, the retail prices of fertilizer rate increased by 9%, wheat prices by 9.5% and power by another 13%.

During IMF programs, along with inflation, basic education and health facilities are also affected. After the 1987-88 SAP, the government of Pakistan reduced state expenditure on education and health services by 3.4% to 2.8%.

The IMF always introduces a harsh set of conditions in the name of correcting the balance of payments, which hurts only the poor. In the case of Pakistan, the IMF has clearly erred by never demanding a reduction in the defense expenditure, or for demanding an end to subsidies for big industrialists, landlords and the civilian bureaucracy.

Policymakers in Pakistan need to focus on designing policies that spur even more investment in the country's SOEs, and all major political stakeholders need to dispense of their fragile self-interest, and work to bring about real institutional reforms. Only through committed reform can Pakistan rid itself of the pain that the IMF brings.

Wajhullah Fahim is a research student at the Pakistan Institute of Development Economics (PIDE), Islamabad.