Loans Taken from Imf

Topics: Monetary policy, Macroeconomics, Economics Pages: 15 (4297 words) Published: February 2, 2011
Group Members:

1. Kumail Saifee

2. Sumaiya Shafi Rahu

3. Abdul Wakeel Zaki

4. Anum Khan

5. Abad Sajid


International Monetary Fund (IMF) was originally created to help countries with balance of payment problems. Countries which have trouble paying international bills are conducive to ruin the international financial system. For this major reason IMF lends to countries of any income group to eventually help in stabilizing the global financial market.

Pakistan is an active member of the IMF. In last decade, loans worth approximately $12.6 billion have been granted to Pakistan. Each loan that IMF grants has its own specific purpose and conditions. Unlike World Bank, IMF focuses on funding a complete program rather than a single project. In our report we will be focusing on the conditionality imposed by IMF and its subsequent affect on the economic policies of Pakistan when granting loans. These conditions serve two purposes:

1. To serve the original purpose of taking the loan; to solve balance of payment problems and stabilize the economy etc

2. To provide sufficient indication through ‘IMF influenced’ economic policies where by which the country proves its overall capability to repay the loan

Please note that these loans are made to the receiving country in certain number of installments. The installment is disbursed to the recipient once IMF agrees to a Memorandum of Economic and Financial policies developed by the recipient that is expected to meet the initial terms and conditions set by IMF.

The report will describe various loans taken by Pakistan under different programs of IMF.

The report will then emphasize on following loans granted by IMF to Pakistan in the past decade (2000- 2010);

1. December, 2001 – Poverty Reduction and Growth Facilitate credit - $1.3 bn

2. November, 2008 – Standby arrangement – eventually increased to $11.3 bn

Each loan would be focusing on the following major factors that were affected and/or will have a trickle down affect on the economy due to IMF’s terms and conditions on the loan;

1. Under Fiscal policy

a. Subsidies removed (Electricity and fuel majorly)

b. Tariffs imposed on Electricity

c. General sales tax & value added tax altered

d. Expenditure on Public Development Sector Program

2. The Monetary policy

Finally, the consequences of these factors will be discussed.

Overview (History of Loans taken from IMF)

IMF (International Monetary Fund) is an organization of UN (United Nations) aiming to assist countries in bringing economic stability and growth. It provides financial assistance to over 187 countries worldwide so that their economy can boost up and poverty can reduce. Apart from that IMF is involved in research of economic health worldwide and acts as a policy advisor as well to its member countries.IMF has established relations with Pakistan as it is one of its 187 countries whom they lend under programs such Extended Credit facility and standby arrangements. Standby arrangements are the most common way of IMF lending to a particular country for short term balance of payment requirement. On the other hand Extended Credit Facility is for providing balance of payment support for a medium term.

When it comes to Pakistan IMF has assisted a lot in managing its balance of payment deficit and has provided its lending facility so that Pakistan can come out of its liquidity problems. Pakistan became the member of IMF in 1950 and 11 loan arrangements have taken place since then under various programs. The first loan taken from IMF was in the year 1958. During 60’s two more standby loan arrangements were made and in 70’s four standby loans worth RS 330 million were provided to Pakistan. Then the era of Extended Structural facility and Structural Adjustment facility came into existence.

The first loan taken from IMF under the SAP (Structural Adjustment Program) was...
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