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2019 marks the 22^nd time that Pakistan has asked the International Monetary Fund (IMF) for a capital loan, and thus the 22^nd time that Pakistan has been asked to radically restructure its economic priorities in favor of the IMF’s neoliberal agenda. The country has, by and large, adopted most components of the IMF’s notorious Structural Adjustment Programs (SAPs), but to little avail. Pakistan is still plagued by abject poverty and inequality, increased foreign debt and government deficits, and little to no signs of growth and productivity in the future. Here, I attempt to explain how the IMF has been part of the problem- its neo-liberal agenda has locked Pakistan in a vicious cycle of dependency; one that most governments promise to end, but almost always end up exacerbating.

What are SAPs?

Structural Adjustment Programs are a product of the popular neo-liberal economic agenda that has emerged since the end of the Cold War. Fundamentally, the agenda purports de-regulating the economy (this means that the role of the state is minimized, and market forces are allowed to dictate how the economy functions), increasing privatization, and liberalizing trade (this means the removal of artificial barriers to trade such as tariffs and subsidies). This, neo-liberals believe, is the optimum route to development and economic progress, regardless of the specific situation of a given economy. Since the IMF is dictated by the neo-liberal agenda, it uses SAPs to alter economies in order to be more suited to the neo-liberal agenda. When governments lack funds or are bordering an economic crisis, the IMF provides them with loans to cover governmental deficits, but in exchange requires governments to structure their economies under the neo-liberal agenda. This means that government oversight is decreased (and thus its involvement in matters of welfare and the protection of stakeholders such as industries and labor), privatization is increased (even with public goods such as water and electricity), and trade barriers are removed (thus exposing industries to international competition). In sum, all of these measures are taken to allow market forces to dictate the economy, primarily through deregulation. What is deeply problematic, however, is the fact that IMF bailout packages have almost never worked. In fact, most countries that do decide to go to the IMF continue to go to it repeatedly, with little to no improvement in their economic position. 

The Pakistani Case: A Vicious Cycle

The recent appointment of an IMF employee as the governor of the State Bank of Pakistan (SBP) has been likened to a “colonization of Pakistan by financial imperialists”. While this may, in itself, be an exaggeration, it must be admitted that the Pakistani economy, by and large, has been dictated by decisions of the IMF.

Pakistan’s economy has seen profound setbacks because of its historical association with the IMF. Under the auspices of the Fund, the country was forced to massively decrease subsidies and public spending in crucial sectors, and implement a wage freeze amongst other restrictions on public sector employment as part of austerity measures. While the IMF claimed that these policies were the route to an economic boom in the country, Pakistan has seen a plunge in investment and growth, rising unemployment, abject poverty, and increasing inequality in the wake of the IMF’s SAPs.

Here, it is important to establish that the IMF continues to claim that these problems are short-term issues: once austerity measures are effectively in place and market forces are allowed to take control, the IMF says, the economy will automatically see growth. This, however, ignores the vicious cycle within which the country is plunged vis-à-vis structural adjustment, and this can best be seen via analyzing what a decrease in governmental spending, de-regulation, and debt-servicing means for the economy in the long run.

Decreases in Governmental Spending

The IMF almost always premises its loans in a demand for austerity, and this means asking governments to significantly reduce spending. Pakistan has not been spared from these demands, and this has meant that the government has had to cut down on public good provisions such as education, healthcare, and sanitation. This means that a country that is already facing economic crises can no longer provide its population with essential services. More so, this also means that there is no substantive long-term investment in human capital. As a result, the economy remains stagnant, with deteriorating capacities in human capital. Since there is subsequently no organic impulse for growth or development, the economy continues to be dependent on foreign assistance for survival.

De-regulation and Liberalization

De-regulation essentially translates into opening up avenues for the monopolization of industries and the destruction of indigenous industries by large multinationals. By de-regulation, the IMF means that the government must stop protecting indigenous or growing industries and allow the survival of the fittest. When feeble companies are challenged by large multinationals, the inevitable result is monopolization. This is extremely worrying for a country that is desperate for economic development because the money that multinationals make is not injected back into the economy. Sure, they provide employment (that too in horrible working conditions and at extremely low wages), but the revenue they generate goes back to the country from which they originate. This means that multinational essentially extract more wealth from the country, and so while they may be providing consumers with better goods at lower prices (even this is compromised when they monopolize), they are essentially doing more harm than good. Associated labor regulation only works to exacerbate the issue: in an attempt to attract investment, governments incentivize multinationals by easing up labor laws. This, then, also means that labor is more prone to exploitation.

What does all this mean in sum? It means that organic impulses for growth and development are crushed rather than incubated, it means that standards of living for labor are decreased rather than increased, and it means that more and more wealth is extracted from the country and given to large multinationals in the global north. Thus, the government continues to see poor revenues and a stagnating economy, and back to the IMF it goes. Read about the inflation and crime rate in Pakistan.

Debt-Servicing

The problems that come with SAPs are only exacerbated by the tremendous debt-burden that IMF loans impose. Loans do not come without interest, and this means that a large amount of government revenue goes into debt-servicing. Even then, given the accumulation of loans and the continuation of previous programs, means that the country continues to be crippled by debt. In the last fiscal quarter, Pakistan paid a staggering $2.9 billion in external debt-servicing. How, then, can one expect the country to free itself from the decapitating constraints of the IMF, or have any prospects of alleviating its abject economic conditions?

A case for the IMF

 While there are indeed strong reasons against going to the IMF, many feel that the government has no other option. It chooses to go to the IMF because it is exceptionally cash-strapped; how does the government, then, subsidize or protect industries to grow exports, to invest in human capital? These are all serious practical questions that have no direct answer, and even those who have opposed going to the IMF have struggled to come up with a resolute alternative. More long-term alternatives are that the tax base should be widened, that elites and multinationals should be taxed more, and that the government should work to become a more efficient institution. These, however, require significant political investments, the kind that are increasingly becoming hard to come by.

While one can accept that at certain points, such as right now, the government has strong reasons for going to the IMF; one cannot see constant requests for bailout packages as a long-term solution to Pakistan’s economic conditions. Even now, the government has been asked to reduce spending, hike prices, and devalue its currency, all of which surmount to massive blows to the economy. These are in no way beneficial to the economy and are not positive indicators for the future of Pakistan’s economy. Critics will argue that a refusal to go to the IMF and remain cash-strapped will plunge the economy deeper into crises; such a claim finds little validity in the long-term, given how previous bailout packages have affected the country in the long-run.