The IMF’s conditional loan and its cost

Pakistan may have been saved, but not the people

18 July by Farooq Tariq

On July 12, 2023, the International Monetary Fund’s Executive Board approved a larger-than-expected conditional loan worth $3 billion for Pakistan. The loan, known as a Stand-By Arrangement (SBA), was hailed as a great victory for Pakistan by the present coalition government led by Prime Minister Shahbaz Sharif. Government spokespersons publicly acknowledged that without the SBA, Pakistan would have faced default. But the common people have to pay a heavy price for the IMF’s draconian terms and conditions.

On the day the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
loan was approved, the price of electricity surged by 5 rupees per unit. The Gas department also announced an increase in prices as part of the agreement with the IMF. The implementation of IMF conditionalities for the loan has resulted in an unprecedented price hike across the country.

Moreover, the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate has already risen to 21 percent, and numerous public welfare subsidies have been withdrawn. New taxes have been imposed on the property and construction industries, while the Goods and Services Tax (GST) has been raised by one percent. Talks of a new mini-budget are ongoing, which could bring about further waves of taxation. These tax measures predominantly affect ordinary people, as the burden of taxation falls heavily on them. Despite the introduction of a new super tax ranging from 1 to 10 percent on affluent individuals and companies since May 2022, there is currently no effective mechanism in place to collect taxes from the wealthy.

To secure the $3 billion SBA, Pakistan paid $12 billion in external debt servicing during the 2022–2023 financial year. In addition to the IMF loan, Pakistan also received a $2 billion loan from Saudi Arabia and a $1 billion loan from the United Arab Emirates (UAE). These loans have temporarily mitigated the risk of default for Pakistan.

However, for the majority of the population, the state has already defaulted in various aspects. The Covid-19 pandemic led to an increase of 20 million people living below the poverty line, and the recent austerity measures implemented by the government since April 2022 have added another 10 million to that count. While there was a 35% wage increase for public sector employees (who had demanded a 100% increase), no relief was provided to workers in the private sector. According to a conservative estimate by the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, the poverty rate in Pakistan is expected to reach 37.2 percent ($3.65 a day).

The IMF conditionalities imposed on Pakistan may not have parallels internationally. The IMF has exerted significant influence over the Pakistani ruling class, requiring them to comply with every demand. This situation is also influenced by the geopolitical dynamics at play, with China being Pakistan’s largest economic partner. Through the Pakistan-China Economic Corridor (CPEC), China has invested over $25 billion, out of a promised $60 billion, in Pakistan, primarily in the form of loans. The IMF feared that Pakistan might utilise the IMF loans to repay the Chinese debts.

Despite last year’s devastating floods, which resulted in a loss of $30 billion, the strict IMF conditionalities have been enforced without considering these challenges. The government has failed to adequately rehabilitate flood victims, with over 4 million people still residing in roadside camps. Furthermore, the promises made to Pakistan at COP 27 under the “loss and damage agreement” have yet to materialise.

Although these economic measures may have helped prevent a Sri Lanka-style default, they have significantly eroded the popularity of the present government. Consequently, the former prime minister, Imran Khan, has experienced a surge in popularity despite losing a vote of no confidence in 2022. This popularity, however, is waning. The violent reaction, including attacks on military installations, by Imran Khan’s party, the Pakistan Justice Party (PTI), following his brief arrest on May 9, provided a pretext for the military establishment to suppress the PTI. Over 3,000 PTI activists and leaders have been arrested, and military courts have been established to try civilians involved in attacking military installations. Ironically, Imran Khan was brought to power by the military establishment but was subsequently removed when he went out of their control.

The general elections are scheduled for October, but there are concerns about a potential postponement. Paradoxically, the present unpopular coalition government, due to the implementation of IMF conditionalities, may still have an advantage in the elections as it is backed by the military establishment. The alternative option available is fundamentalist religious parties, which, at least in words, maintain opposition to the IMF. These fundamentalist parties may regain popularity, similar to their success in 2002 following the 9/11 events. Imran Khan’s PTI, unless disqualified due to corruption allegations and attacks on military installations, is unlikely to achieve the same level of success as in the previous 2018 general elections.

The left-wing parties in Pakistan, presently marginalised, are planning to contest only a few seats. Ali Wazir, the sole socialist member in the National Assembly, has gained prominence through his opposition to the military establishment. However, he has become a target for the powerful military, having spent half of his mandated period behind bars. While he remains popular in his constituency, election rigging may hinder his victory in the upcoming elections.

Farooq Tariq

is the General Secretary of the Pakistan Kissan Rabita Committee, a network of 26 peasant organizations and a coalition member of the international platform La Via Campesina.



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