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IMF And Pakistan


Category: Miscellaneous

Autor: peter 19 March 2011

Words: 9930 | Pages: 40


Submission: 23rd April'2009


Executive Summary 4

Background 5

Prolonged use of IMF resources 6

Reasons to approach IMF 7

History 8

Lending arrangements 9

Extended Fund Facility 1980 9

Late 1980s and 1990s 10

Stand-By Agreement 2000 13

Poverty Reduction and Growth Facility 2001-2004 16

Stand-By Agreement 2008 18

Macro-economic Analysis 20

Other social costs 21

Irrationality on part of IMF 23

Failed IMF goals and conditionalities 27

Cancelling effect of conditionalities 28

Adverse side effects of some policies 28

Lack of institutional reforms 29

Reasons leading Pakistan to IMF 30

Long term solution plan 31


Argentina: 34

Russia 36

India 37

Senegal 38

Countries that have exited IMF programs 40

Morocco 40

Jamaica 41

END 41


This Term Paper has been prepared for the course: Management and Organization of Pakistan's Economy. The topic of this Term Paper is: International Monetary Fund and its effect on Pakistan's economy. This paper begins with introducing the IMF (International Monetary Fund) and explains its philosophy of existence. Next it talks about the prolonged use of IMF's resources and discusses the reasons why countries have to knock on IMF's door for financial assistance.

The next section of this Term Paper talks about IMF and its role in Pakistan. Here, we discuss the various time periods when Pakistan took IMF's assistance. We discuss Pakistan's agreements with IMF from the time Pakistan first took IMF assistance i.e. in 1958 till the last SBA taken from IMF in 2008. We have not only talked about the IMF packages conditionalities for Pakistan but also do we emphasis on the economic scenario that resulted as a result of implementation of IMF clauses. Thus, with the aid of our primary and secondary research we came up with a comprehensive macro-economic analysis of Pakistan's economy during the IMF programs era.

Next portion of this report talks about that how IMF conditionalities have failed in certain circumstances. Hence, we explain the irrational assumptions and actions taken by IMF which lead to the failure of many IMF implemented programs. The report then has explained the factors which pushed Pakistan towards IMF programs and then follows the part where we discuss that what changes are necessary in Pakistan to avoid any further IMF programs. We share long term solutions to Pakistan's debt problem which we learnt through our interview with renowned Pakistani economist Mr. Shahid Hasan Siddiqui and Mr. Kaiser Bengali. Our Term Paper finally ends with a brief discussion of some other countries who took IMF assistance, how they dealt with it and how some of them successfully managed to exit them.


IMF is a multilateral agency that was formed in the aftermath of World War II in 1944 in New Hampshire, United States. It is a product of the Bretton Woods Institutions. The philosophy behind the formation of IMF was that taking loans from one country was not sufficient in solving the problems of the developing countries. It was realized that the countries need help to overcome structural and macro-economic weaknesses in their framework. IMF is an organization with 185 member states on board. Its objectives are:

"Working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty".

Special Drawing Rights are the unit of currency taken into account by IMF. It is defined in terms of a basket of major currencies used in international trade and finance. At present, the currencies in the basket are, by weight, the United States dollar, the euro, the Japanese yen, and the pound sterling. Before the introduction of the euro in 1999, the Deutsche Mark and the French franc were included in the basket. The amounts of each currency making up one SDR are chosen in accordance with the relative importance of the currency in international trade and finance. The determination of the currencies in the SDR basket and their amounts is made by the IMF Executive Board every five years.

Composition of basket (value of 1 XDR)

Period  USD





1981–1985 0.540 (42%) 0.460 (19%) 0.740 (13%) 34.0 (13%) 0.0710 (13%)

1986–1990 0.452 (42%) 0.527 (19%) 1.020 (12%) 33.4 (15%) 0.0893 (12%)

1991–1995 0.572 (40%) 0.453 (21%) 0.800 (11%) 31.8 (17%) 0.0812 (11%)

1996–1998 0.582 (39%) 0.446 (21%) 0.813 (11%) 27.2 (18%) 0.1050 (11%)

Period  USD




1999–2000 0.582 (39%) 0.3519 (32%) 27.2 (18%) 0.1050 (11%)

2001–2005 0.5770 (45%) 0.4260 (29%) 21.0 (15%) 0.0984 (11%)

2006–2010 0.6320 (44%) 0.4100 (34%) 18.4 (11%) 0.0903 (11%)


Fifty years from the inception of IMF, there has been a heated discussion as to the efficacy of the loans in terms of macro-economic performance of the recipient countries.

Dr. Shahid Siddiqui mentioned that those who utilize the IMF resources the most are the ones who criticize IMF the most as well. He was referring to the prolonged users of IMF.

In this regard, it is imperative to define the prolonged users of IMF's resources. The prolonged user of IMF resources is the one who have been under IMF supported programs for 7 or more years in a 10-year period. 44 countries were prolonged users from the time period 1971-2000. 29 of these countries were PRGF eligible.

List of prolonged users (1971-2000)

Jamaica and Morocco have graduated from the prolonged use of IMF's resources. Also India took IMF arrangement in 1991 but exited from the program as the crisis improved. In the aftermath of the East Asian Financial Crisis, Malaysia was the only country that did not go to IMF with a begging bowl in hand. Argentina, Senegal and Russia have suffered grave setbacks and faced worsened economic situation by signing agreements with IMF. IMF is criticized for using a rigid set formula on all recipients without taking into account individual differences. The renegotiation and exit conditions are tough. Also IMF's relationship with recipients sets the tone for financing help from other agencies in the world at large.


a) Current account imbalances and inability to meet external payment obligations out of indigenous resources including external capital flows like FDI.

b) External debt obligations falling due immediately are in excess of the country's capacity to pay. The commercial creditors refuse to roll over maturing debt or demand high roll-over premiums.

c) Speculative attack on a country's currency (particularly under a fixed exchange rate) leading to spending of foreign exchange reserves rapidly.

d) Banking sector or financial sector suffers from a systemic failure and the depositors' money is at risk or a combination of these and other factors.

In case of Pakistan in 1988, it suffered a massive debt crisis that led it to approach IMF while recently foreign exchange crisis is the root cause behind our involvement with IMF again.

Mr. Kaiser Bengali cited that in Zia's regime, government resorted to heavy borrowing and deficit financing. When Zia came, debt-to-GDP ratio was 24% and when he left the ratio stood at 48%. In 1984, Mahbub-ul- Haq, Finance Minister, had issued whitener bonds. These matured in 1990s and hence left virtually no resources with the new government. The debt service rate was 40%.

Elaborating further, Mr. Bengali also provided an insight into the structural weaknesses surrounding Musharraf regime leading present government to knock doors of IMF.

GDP growth is an average of growth in different sectors of the economy. Due to consumer financing, banking sector and automobile sector grew by 29% and 45% respectively. Hence GDP growth came to about 8%. However, the growth was hollow and short-lived. Loose monetary policy resulted in massive imports without significant increase in exports. Extraordinary shocks in 2007-08 (high prices of crude oil, depreciation of rupee, political turmoil) aggravated our situation. FDI and portfolio investment was drawn out. Privatization proceeds were thought to delay the crisis until 2009 but it came a year before due to extraordinary shocks in FY08. This was the foreign exchange crisis.

This shows that besides the stringent policy measures, country's own weaknesses have a major role to play in its involvement with IMF. If our national leaders work on developing Pakistan as a development state and not a national security state, then we may be able to address our own problems and not go to a foreign organization.


Pakistan joined IMF in 1950. In 1958 Pakistan approached IMF and obtained a ten month standby arrangement (SBA) of US$ 25 million but withdrew from the facility and the whole amount remained undrawn. In 1965 and 1968, Pakistan entered two more SBAs that lasted for a year. In 1970s Pakistan received 4 SBAs amounting to Rs. 330 million on a cumulative basis. From 1958 to 1979 Pakistan had access to less than $460 million of IMF loans. These are summarized in the table below:

Type of arrangement Period Agreed amount (US$ millions) Amount drawn (US$ millions)

Standby Dec. 58 – Oct. 59 25.00 -

Standby Mar. 65 – Mar. 66 73.50 37.50

Standby Oct. 68 – Oct. 69 75.00 75.00

Standby May 72 –May 73 100.00 84.00

Standby Aug. 73 – Aug. 74 75.00 75.00

Standby Nov.74 – Nov. 75 75.00 75.00

Standby Mar. 77 – Mar. 78 80.00 80.00

Extended arrangement 1268.00 349.00

Extended arrangement 919.00 730.00



The long term Extended Fund Facility given in 1980 for 3 years deserves special attention. First of all it was a $1.27 billion loan which was the largest ever extended to any country and three times the amount given during the period 1958 to 1980. Since then IMF has become an important source of aid to Pakistan. The objectives of this facility were:

1. Raise share of investment from 16.5% of GNP (79-80) to 17.1% (82-83).

2. Increase the ratio of gross national saving to GNP from 12% to 14% by 82 – 83

3. Contain inflation to an average annual rate of 10%

4. Reduce the ratio of current account deficit to GNP below 4% by 82 – 83 from 5% in 78 – 80

5. Finance current account deficit through long term loan on concessional terms and direct investment inflows by the end of a five to six years period.

This included the devaluation of rupee, liberalization of imports, curtailment of government expenditures, abolition of subsidies, promotion of exports and increased role of private sector. Rupee was delinked from dollar and put on a managed float, savings were increased through direct taxation measures, imports were liberalized, and fertilizer subsidies were eliminated in 1985 while pesticide subsidies were eliminated in 1988. Price of petroleum was increased and price of natural gas was made equal to that of fuel oil.

In 1970s the interest rates on SBAs were high. The conditions on EFF of 1980 were favorable. There were many exceptions attached to this loan. First it was the largest facility ever extended to any developing country. Second, the debt repayments were rescheduled through aid to Pakistan consortium rather than Paris Club. This was due to change in perception of IMF, driven primarily by US, which is the biggest donor of IMF.

The strategic importance of Pakistan increased due to two events – Iranian Revolution and Soviet occupation of Afghanistan. This shows that the change in behavior was not due to improved macro-economic performance of the country but rather increased political and strategic importance.

LATE 1980S AND 1990S

In stark contrast, the loans extended in the late 80s and 90s had tough conditions attached. The number of conditions with SAP increased from 27 in 1985 to 56 in 1989. By 93 – 94 Pakistan's external debt was $20.3 billion (39.1% of GDP) and the debt servicing was $1.7 billion which was 16.4% of foreign exchange earnings and 26.4% of export earnings. This could have been adjusted had the government increased direct taxes and imposed new taxes like gift tax and implemented import controls but this was against IMF's liberalization policy. Hence policies remained more or less attuned to IMF's stance without regard to economic development. The list of these loans and packages are as follows:

Regime Period Type of arrangement SDR millions % Undrawn

Agreed amount Amount drawn

Bhutto/ Nawaz Sharif Dec. 88 – Dec. 91 SAF 382 382 0

Bhutto Dec. 88 – Mar. 90 SBA 273 194 29

Qureshi/ Bhutto Sep. 93 – Sep. 94 SBA 265 88 67

Bhutto Feb. 94 – Feb. 97 ESAF 606 172 72

Bhutto Feb. 94 – Feb. 97 EFF 380 123 68

Bhutto/ Meraj Khalid/ Nawaz Sharif Dec. 95 –Mar. 97 SBA 562 295 48

Nawaz Sharif

Oct. 97 – Oct. 00 ESAF 682 265 61

Oct. 97 – Oct. 00 EEF 455 113 75

Pervez Musharraf Nov. 00 – Sep. 01 SBA 465 465 0

Dec. 01 - 2004 PRGF 1410 6 out of 12 disbursements In process

In 1993, the $265 million SBA for three years was obtained. A controversy started between IMF and Pakistan with regard to the Budget 1995 – 96. The budget deficit was to be reduced to 4% but government could do it to 5%. Also the tariff rates were to be reduced to 45% but government was able to reduce it by 65%. The government would have to take drastic measures, in the form of high taxes and reduction in revenues by reducing tariffs, to achieve these objectives. IMF suspended and cancelled ESAF and EFF.

After four months, however, Pakistan faced fall in exports and decline in forex reserves from $2.7 billion in June 1995 to $ 1.2 billion in October 1995. Government devalued rupee by 7% and imposed regulatory duty of 5% to 10% on imports. A rise of 7% was imposed on petroleum prices. Pakistan then again approached IMF and obtained an SBA of $ 600 million for 15 months at market rate of 5%. This shows dependence of Pakistan on IMF.

In Sharif's regime, some economic reforms occurred like privatization, lowering of corporate tax rates for public enterprises (30% from 33%) and non listed companies (35% from 43%) , cut in tariffs by 20% coming to 45%, and reduction in GST to 12.5% from 18% and 3% on selected retail trade. These were appreciated but IMF said that it will renew concessions only if these reforms are implemented.

The first disbursement ($208 million) came in 1997 that provided support in times when exports were low, forex reserves were below $1.3 billion and external debt was high. Second disbursement ($ 208 million) came in 1998 on tougher conditions like low budget deficit, improve access of foreign investors to oil and gas sector and imposition of GST.

Government could not impose 3% tax on retail trade. The subsequent tranche payments came with even tougher conditions. In 1999, Pakistan received Balance of Payment loan which included $37.9 million under ESAF and $ 18.97 million under EFF. Pakistan also obtained Compensatory Contingency Finance Facility (CCFF) - $352.7 million to compensate for low exports in 1998. This was accompanied by tough economic performance targets:

Conditions with Compensatory Contingency Finance Facility (CCFF)

Doubling of the GDP growth from the 3-4 percent range to 5-6 percent

Halving of the current account deficit from 3 percent of the GDP in 1998–99 to less than 1.5 percent in 2001-02

Reducing inflation from about 9 percent to 6 percent in 2001–02

Increasing the rate of domestic savings from 12 percent of GDP to 16 percent

Stabilizing the ratio of public debt to GDP

Further phased reduction in electricity rates

Unification and devaluation of the exchange rate

Imposition of a Goods and Services Tax (GST) on services, petroleum, electricity, and agricultural inputs

Broadening of the tax base

Restructuring of public sector enterprises in preparation for privatization

Reduction of the government payroll through massive staff reduction

In May 1999, IMF sent a 5 member committee to review performance. The committee reported that Pakistan failed to meet the conditionalities. There were disputes over electricity tariff setting issues. It also delayed settling dispute with Independent Power Producers (IPPs). IMF thus postponed another disbursement of $208 million due in July 1999.

The most severe crisis came with nuclear test bombing on May 1993. The country was on the verge of default as US imposed economic sanctions on the country and all IMF programs were suspended. The private capital inflows (remittances, foreign aid and foreign capital accounts) reduced.

Composition of Key Macro-economic Magnitudes in the Pre-Blasts and Post- Blasts/ sanctions scenarios 1998-99

Pre- Blasts Scenario Post-Blasts scenario Difference

GDP growth rate 6% 3% -3%

Rate of Inflation 6% 5% -1%

Budget Deficit 6% 6% 0

Current Account Deficit 3.5% 6% 2.5%


Pakistan had gone to IMF for assistance 8 times since 1988. But in 2000, the need to approach IMF rose again as the country was on the verge of bankruptcy. There was economic mismanagement and corruption by successive governments which used the public funds for their own private use; this widened the current account deficit. This deficit was financed through funding by external agencies. Hence, Pakistan's total debt and external liabilities grew by an average rate of 6.4 percent per annum during 1990–99. It stood at $23 billion in 1990–91 and reached almost $38 billion by 1998–99. This sharp increase in the total debt resulted in the increase of debt servicing liabilities in the 1990s. In 1990–91, almost 40 percent of revenues were consumed by debt servicing, while in 1998–99 debt servicing was consuming 63.5 percent of the national budget, leaving 36.5 percent to be spent on defense, civil administration, and development works.

Besides this the country had encountered a major government change. The popularly elected democratic Nawaz government had been overthrown by the military; leading to the beginning of the Musharraf government. Furthermore, there had been misreporting of the budgetary expenditure by the Nawaz government. Hence, we had lost our standing in eyes of the international funders. We had become accustomed of entering into agreements, failed to meet the conditionalities and ended up suspending the agreements midway.

So when Pakistan knocked on IMF's door to resume the suspended ESAF/EFF program, IMF wasn't welcoming. They came up with a new 10-month SBA agreement which had tough conditionalities. But since, Pakistan desperately needed the loan they accepted the new SBA even though the country was facing serious socio-economic setbacks. The level of poverty in the country was on rise, the per capita and fixed incomes had seen no improvement, sanctions and embargos were in place due to nuclear testing of 1998, and the investment had significantly declined. To prevent further aggravation of these problems, escaping IMF had become inevitable.

The focus of IMF conditionalities was not limited to improving the budgetary position but policies that introduced fiscal reforms were suggested to Pakistan.

IMF Conditionalities in SBA 2000

Reduce debt burden

Competitive pricing of inputs, outputs & public utilities

 Implement quarterly petroleum pricing mechanism

Widen the tax base & strengthening tax administration

 Implement GST on all agricultural inputs; urea fertilizer & pesticides

 Extension of GST to all retailers/traders above PKR 5mn limit.

 Extension of income tax to all new NSS instruments

Remove subsidies, exemptions & privileges

 Elimination of interest subsidy on Export Financing Scheme

Increased reliance on market forces to determine exchange rate

 Create a formula linking interest rates on new Defense Savings Certificates to the market-determined yield of the new government bond

Encourage trade liberalization

 Elimination of any discrimination in excise rates between imported and domestically produced goods.

Privatization of State-owned banks & energy companies

But most of these conditionalities would not be friendly for the common man. The above stated changes would results in increasing the utility, gas and fuel prices which would be burdening the customers. Privatization of the previously nationalized organizations would result in lay-off surplus labor and hence, eventually increasing unemployment.

However, after the SBA during FY01 certain positive developments did take place. Firstly, there was a surplus current account of US$331 million; this was the first ever surplus current account in history of Pakistan. However, this current account surplus was not solely achieved by cutting down non-developmental expenditure; it had also resulted in decreasing developmental expenditure such as for education. As a result of this surplus, the ratio of current account to GDP improved to 0.6% in FY01 from -0.4% in FY00. The economy grew by about 2.6% in FY01 despite an estimated 3% decline in agriculture output due to drought, and large increases in the energy import bill. Secondly, there was a lower trade deficit in FY01 as compared to FY00. This change in balance of payments had come as the Saudi oil facility loan was converted into a grant for us. This, however, was not an outcome of the SBA. It was an outcome based on diplomatic ties. Finally, there were improvements in capital account after the SBA as we got inflows from international financial institutions.

However, what must be taken onto account is that not all IMF conditionalities were stringently followed by the Pakistani government. We did increase the energy prices which affected the common man but we still continue to keep agriculture sector out of the tax net.


The government of Pakistan then adopted an economic reform program for 2001-2004, with the intention to increase sustainable growth and support basic social services. The plan of PRGF was to restore the confidence of the private investors in the Pakistani economy and at the same time to reduce poverty by strengthening efforts on basic education and health as well as social safety nets.

The PRGF Plan

No new exemptions or special privileges regarding income tax, custom duties, or GST to be granted.

No new regulatory import duties to be imposed

All time bound exemptions and regulatory import duties to lapse without extension

Increase pro-poor expenditure by 0.20% of GDP every year.

Apply standard GST penalty regime to retailers.

Eliminate GST exemptions for all fertilizer wholesale and retail trade

Gradually, phase out the GST subsidy on electricity and of GST exemptions for edible oil, vegetable ghee, and pharmaceuticals (except lifesaving drugs).

Implementation of universal self-assessment scheme (USAS) in filing taxes.

Start operations of a Large Taxpayer Unit, integrating all domestic tax operations.

After the PRGF in 2001, Pakistan witnessed a rise in economic growth in both FY02 and FY03 of 3.6% and 5.1% respectively and reached 6.4% in FY04. Most important was the return to normal output in agriculture sector as we began to recover from 3 years of drought. As per this program the government was to increase the pro-poor budgetary expenditure by 0.20% of GDP per year. This can be considered an achievement as opposed to 1995-2000 time periods where public expenditure was declining by 0.25% every year.

Consequently, pro-poor public expenditure increased from 3.8% in FY02 to 4.8% in FY05 and further to 5.7% in FY07. Only in FY03 There was increase in government spending by 20.6% as compared to FY02, in areas of water supply and sanitation, health, education, population planning and rural development. Then, to support the poor population of the country, as part of Social Safety Net Program, the government launched direct cash-transfer programs for poor families through medical assistance, and educational stipends from the Bait-ul-Maal (a public welfare program). Only the Food Support Program covered 1.2 million of the poorest households with monthly incomes of up to Rs2000/- per family (US$35). However, Pakistan's Tax-GDP ratio has remained stagnant during this time period at low levels and the tax net was limited to only 1.1 million tax payers of which 0.45 million were salaried workers. Thus, there was high dependence on regressive indirect taxes and this had created a disproportionately high burden on the middle and lower income groups.

And as far as poverty levels are concerned in the country. If we look at the government's figures (Economic Survey 2002-03) on headcount levels of poverty, overall poverty incidence in Pakistan in FY01 was estimated to have risen to 34.5% compared to 26.1%in FY91.

Hence, as a result of IMF's SBA and PRGF we may have achieved some economic growth but we failed to improve the state of poverty in the country. The PRGF did focus on increasing the pro-poor expenditure but still there was low level of spending in health sector. Spending here declined from 0.8% of GNP in FY90 to 0.7 percent of GNP in FY03. Not only the spending on health sector is low but also its allocation within the sector is directed to the areas that do not benefit the poor. Clearly, high priority was given to hospitals, medical colleges and services in urban areas. Where as primary healthcare and rural health service have been ignored which has led to a high rural-urban disparity in health care resulting in rapidly increasing poverty level in rural areas compared to urban areas during the last decade.

Then the public expenditure on education as percent of GNP was the lowest at 1.8% in FY03 in Pakistan compared to other low income countries of the region such as India, Bangladesh, and SriLanka. We have only given priority to the tertiary education, whereas primary education to the bulk of population has been ignored. Most importantly, we fail to utilize our resources effectively in this sector as well. From Mr. Kaiser Bengali we came to know that there are 67 public organizations operational in the country at national and provincial level. But still, we spend more on the management of these organizations rather than spending it on improving the education condition of the country. It is because of this that we have such a low literacy rate in our country.


During FY08 and in first quarter of FY09 the macroeconomic scenario of Pakistan deteriorated tremendously. We faced the exogenous oil price shock (that adversely effected our import bill and decreased our SBP's forex reserves to $3.4bn in October 2008 as compared to $8.6bn in June 2008) along with double digit inflation (CPI rose to 25% in October 2008) which soared up food prices. Besides this there was slowed economic growth (5.8% in FY08 as compared to 6.8% in FY07) due to weaker performance of the agricultural and large-scale manufacturing sector which aggravated due to the prevalent power crises and global financial meltdown.

Then there was the rising fiscal deficit as the Government was giving energy and food subsidies to our consumers to prevent them from the shock of rising international prices. This deficit was largely financed by SBP's reserves. And more over, at this very time we had maturing Defence Savings Certificates and Sovereign bonds. The Interest payments on domestic debt accounted for 17.2 % of total expenditure in FY07 and 21.5% in FY08. Hence, our reserves became exhausted and it became essential for us to knock on IMF's door for aid. And we got a 23-month SBA of $7.6bn by IMF.

SBA 2008's Conditionalities

A reduction in the fiscal deficit from 7.4% of GDP to 4.2%,

Decreasing public expenditure

Gradually eliminating energy subsidies

Raising electricity tariffs by 18%

Eliminating tax exemptions

An increase in social safety net spending of 0.6 % of GDP, to 0.9% of GDP

Limit SBP financing of the budget to zero

To continue following a tight monetary policy

Hence, government began to control the fiscal deficit bringing it down to 1.9% of (estimated annual) GDP for H1-FY09 from 3.4% of GDP in H1-FY08. This was done by sharp cut in development spending. However, looking at the country's growing investment needs, it is simply not desirable for the government to keep development spending at low levels. Where government should cut is defence spending and interest costs on the rising debt: they absorb about 75% of our revenues. However, the crowding out effect shall prevail in the economy as in order to reduce the fiscal deficit nothing will be left for the private sector. As now the government has begun to borrow from scheduled banks and not just the SBP.


The macro-economic performance of the country can be divided into four periods:

1. 1958 to 1970

2. 1970 to 1988

3. 1988 to 2000

4. 2000 to present

In the first period, the loans extended by IMF did not have a significant impact on the economy as it was not a major donor agency. These were temporary and short term arrangements. In the second period, the GDP growth rates were high (6-7%) and other macro-economic indicators were reasonable. This shows IMF programs had a positive impact on a correlational basis. In the third period when IMF became a full fledged source for obtaining debt, lots of issues surfaced. The IMF was successful in achieving a few objectives. The inflation declined to 4% in 1990s. Liberalization of economy, public debt management and autonomy of Central Bank was achieved. However, GDP growth rate was low at 4%, current account deficit and fiscal account deficits were high at 4% and 5% respectively. The frequent change in governments and incomplete drawings of IMF packages made this period unsuccessful on the whole.

The 2000 package is termed successful largely due to completion of the IMF loan. This was because there was stability in political regimes; Musharraf's goals were aligned to IMF's goals. The PRGF was also implemented with some success. However, the cracks in economy resurfaced in 2008 and the economic miracle of early 2000s evaporated. Today Pakistan is again in negotiation with IMF. This shows that even though the program implemented during Musharraf regime was complete but did not ensure long term macro-economic stability.

The IMF programs have been focused on fiscal deficit which was to be brought to 4% of GDP. High taxation and reduction of government expenditure are the ways to achieve that. From 1994-97, additional taxes of Rs. 140 billion were collected without increase in the tax base. The proportion of indirect taxes including sales tax increased. Government failed to reduce non-development expenditure like Defence and administrative expenses. Development expenditure was slashed and it came down from 9.3% of GDP in 1981 to only about 3.5% of GDP in 1996-97. The original allocation of development expenditure in 1996-97 was Rs. 105 billion but it was slashed to Rs. 85 billion. The prices of utilities of electricity, gas and POL products were increased. The sale of state-owned enterprises and devaluation of rupee became the usual parts of the SAP.

Pakistan needs investment in infrastructure, rural development, capital inflows and effective strategy for income redistribution. However these measures are not favorable with IMF as it advocates curtailment of public expenditure.

These policies have led to a high inflation rate. The trade reforms have resulted in deindustrialization of the country as imports have been liberalized. The local industries cannot compete so they shut down. The fast pace of privatization along with shutting of local industries increased the incidence of unemployment. The low income population has been the worst hit by the crisis as their wages have not increased in proportion to the price increases. The social costs are as follows:

1993 stats % of Population

Illiterate adults 64

Illiterate female adults 77

Population below poverty line 28

Without access to health services 45

Without access to safe water 50

Without access to sanitation 67

Malnourished children 40


 17 million children out of school in 1995

 60 million people do not have access to health facilities

 67 million are without safe drinking water, 89 million without basic sanitation facilities

 740,000 child deaths a year, 50% linked to malnutrition

 50% children drop out before reaching grade 5

 Against 100 males, only 16 females are economically active

 36 million people live in absolute poverty

 There are 9 soldiers for every 1 doctor and 3 soldiers for every 2 teachers

After taking loans from IMF, the level of debt burden has grown so high that Pakistan's ability to raise further loans is lower than other emerging economies. This is due to the following factors :

a) A low public revenue ratio: low tax net and tax evasions have led to a low revenue ratio, thus thwarting Pakistan's ability to repay debt. In emerging economies the public revenue to GDP is 27% on average but is roughly 14% in Pakistan.

b) Inflexible composition of fiscal expenditure: the share of interest expenditures of total expenditures is around 20% which is higher than that of other emerging economies (average 17%).

c) Low levels of trade openness: Pakistan's ratio of exports to GDP compared to other emerging economies.


1. Increase in the number of conditionalities:

The conditions have increased from 4 in 1988 to around 35 in 2000. It was more like a punitive action than a stabilization or reform measure. This further puts strain on the resources of the country to comply with IMF. These were accepted, from time to time, as Pakistan had no other option of plugging its cash flows and overcoming crisis.

Evolution of Structural Conditionality (average number of conditions per program per year)

2. Overoptimistic projections:

Since 1993, IMF programs were overoptimistic and set unrealistic targets. The projections of GDP and export growth, domestic savings and investment were extremely large. It was implicitly assumed that the program will work as planned which is not the case in Pakistan. The discrepancies are so wide that it is difficult to say that only poor implementation is the reason for failure of the program.

Growth rate was overestimated by an average of 1.5% in the 1990s. This was in part due to exogenous shocks like oil price increase. IMF did not revise the targets for the fiscal deficit. As no contingency plans are prepared and there is lack of a policy to avoid policy slippages, ad hoc efforts were undertaken to meet the targets. This is not sustainable for a longer period.

Export growth was projected to grow by 15% annually which would have been greater than the 11% growth rate in 1970s/80s. However, exports grew by only 5% annually in the 1990s. This showed a huge improvement in the projections of the current account deficit while capital account projections were conservative. This led to a significant underestimation of external debt servicing charges from the early 1990s onward.

The targets for tax revenues were also overly ambitious given the restricted time frame. Even downward revision did not allow the targets to be achieved from 1988-2000. There was over optimism in the length and diversity of the reform agenda in IMF programs. The areas of economic policy covered increased from 4 in 1988 to 11 in 1997. This resulted in overburdening of resources and weak prioritization.




3. Fulfilling vested interests of United States – major donor to IMF:

In 1988 and 2001, Pakistan was given favorable treatment in terms of the size of the loans and conditionalities. Also other agencies became favorable to Pakistan and extended support. This was not due to improved macro-economic performance of the country but change in perception of Pakistan. In 1988, Pakistan had strategic importance for US due to Soviet invasion of Afghanistan and Iranian Revolution. In 2001, Pakistan became US ally in War on Terror and continues to do so. Again, these reasons are not sustainable for the long term progress of the country.

4. One set formula applied to all countries without regard to individual conditions:

The main ingredients of the IMF packages are summarized in the table below. This formula has inherent weaknesses that curtail the effectiveness of loans extended by IMF to crisis-stricken nations, adding to their woes.

Ingredient Impact

Privatization, elimination of subsidies Inflation, hurt common man

Switch from fixed to floating exchange rate Expensive imports, cheaper exports

Imports of 308 items liberalized Adverse impact on balance of payments

Increase in prices of utilities High cost of production

Incentives to private sector at the cost of public sector Increase income and class disparity

5. Carrot-stick approach in meeting targets:

They may also suspend IMF program if they are dissatisfied with the pace of the program. In 1990s, Pakistan itself suspended IMF programs due to political instability. Instead of keeping the broader national objectives in mind, political parties were more interested in shifting the blame to others. Even when Pakistan pursued the IMF objectives, IMF objected to the slow pace. In 1990s IMF suspended the promised tranche because the government was too slow in reducing the fiscal deficit to 4% although it was making efforts. Government had to keep the livelihood of common man in mind. It could not draw unreasonably high taxes and completely eliminate subsidies. Also IMF conditions call for discouraging investment, curtailing economic growth and hence reducing unemployment.



Agricultural taxation was pursued through IMF-supported programs since 1981 through the following conditionalities. None of these conditions had substantially increased the contribution of the agricultural sector to tax revenues by the end of the decade. It is still a challenge to tax agricultural income.

A Chronology of IMF Conditionality on Agricultural Taxation in Pakistan

1981 (EFF): commitment in the authorities' Memorandum of Economic Policies (MEP) to tax agricultural output within one year (formally implemented, but with a very low yield).

1991 (SAF): commitment in the MEP to extend the scope of agricultural taxation in the 1992/93 budget (not implemented).

1993 (SBA): prior action on extension of taxation to the agricultural sector (met).

1994 (EFF/ESAF): prior action on parliamentary approval of ordinance relating to federal agriculture taxation (met) and performance criteria on expansion in agricultural tax base including through Produce Index Units (PIU) adjustment, within six months (met).

1995 (SBA): performance criteria on inclusion of provisions in 1996/97 budget to broaden agricultural taxation through an increase in PIU to PRs 400 and extension of its base (met).

1996 (SBA, revised): performance criteria on adoption by all provinces (by end-December 1996) of ordinances on agricultural taxation (not met); establishment of a task force on the potential revenue from provincial agricultural taxes (met); and task force to present recommendations for 1997/98 budget and the medium term.

1997 (EFF/ESAF): performance criteria on harmonizing provincial taxation of agricultural income with that prevailing in Punjab, by end-June 1998 (not met; waived and rescheduled).

1998 (EFF/ESAF): performance criteria on harmonizing provincial taxation of agricultural income with that prevailing in Punjab, by end-June 1999 and structural benchmark on finalization by the same date of the rate and threshold structure for the provincial tax on agricultural income capable of yielding PRs 3.5 to PRs 4 billion in 1999/00 (both conditions partially implemented, with delay).

2000 (SBA): performance criteria on GST extension to urea fertilizers and pesticides by March 2001, and to all other agricultural inputs by September 2001 (both performance criteria met); structural benchmarks on full implementation of agricultural income taxes on the basis of provincial implementing regulations to become effective in each province by end-June 2001 (met with delay in two provinces, unmet in other two).


When conditionality was reinforced and made more stringent in the mid-1990s, conditions were often met in ways that minimized their impact. A few examples can illustrate the general problem:

Conditions Examples

By enacting a law but not implementing it. Extension of GST to the services sector and taxation of agricultural income.

By adopting a new tax but with so many exemptions as to make its additional yield negligible. The GST act in 1990

By abolishing existing tax exemptions while simultaneously creating new ones; in other cases, measures adopted were subsequently reversed or suspended. The petroleum price adjustment mechanism from 1995 to 1998


1. Shifting taxation from international trade to domestic activities: the custom duties were reduced in accord with liberalization as shown bY the graph below. The share of domestic taxes was increased.


The GST put in place in 1990 did not generate significant revenue to offset the revenue loss from eliminating custom duties. This was largely due to exemptions in several sectors and poor tax administration. Income tax collection was also low due to poor administration and low tax base. This resulted in revenue shortfalls.

2. Inconsistent measures to meet targets: frequent tax increases and expenditure cuts fill revenue gap in short term but have resulted in lower tax base as people shift to informal sector to avoid paying taxes. This has worsened business environment by making tax legislation unpredictable. Also CBR has large discretionary powers, which allows it to harass the taxpayers. Expenditure cuts have led to a marked decline in public investment from about 10% of GDP (1992) to 4.5% of GDP (2000).

3. In 1988, there was to be simultaneous liberalization of interest rates and lending practices, regulatory reform of the banking sector and reduction in the borrowing requirement of the public sector. As only the first measure was implemented, the financing costs of fiscal deficit increased, led to large volumes of nonperforming loans and high interest rate spreads that have depressed economic activity.


It is now agreed that IMF programs should have pursue institutional reforms in the banking sector, tax administration and public enterprises. The technical assistance provided could have been used in this regard. These changes are being done now. Such conditionality did not come until 1997/98 EFF/ESAF. These reforms could have prevented the deterioration in the quality of banks; portfolios in 1990s. Hence the design of the programs led to the ineffectiveness of the program. This was also pointed out by Kaiser Bengali in the interview. Institutional reforms, as pointed out by Ishrat Husain , will require overcoming the following:s

 Appointments and postings on the basis of favoritism and nepotism

 Award of contracts on kickbacks and plunder

 Issuance of SROs to make a few selected individuals rich

 Sanction of loans on the basis of political connections

 Undertaking unproductive and wasteful mega projects of little economic value

 Slow down of privatization process and financing of losses of public sector enterprise from within the budget

 Paralyzing the functioning of local governments

 Return of creeping protection of domestic industry to appease the lobbies of rent seekers

 Incessant bureaucratic and political interference resulting in inconsistent, unpredictable and discontinuous policies.


Since 1988, Pakistan instead of addressing national economic issues internally has resorted to help from external agencies. This has resulted in a multitude of problems including loss of confidence of both domestic and foreign investors. Poor governance and tough IMF conditionalities have both played a role in the weak and turbulent state of Pakistan's economy. The structural weaknesses are deeply embedded and need more than just IMF programs to overcome. We need political will and morale to bring about these changes.

Dr. Shahid Siddiqui pointed out the following as potential cracks in Pakistan's economy leading us to IMF on a recurring basis:

1. Low tax to GDP ratio. Currently it is 9.5% of GDP. While Malaysia spends 10% of GDP on education, Pakistan has barely 10% of GDP of revenues. It was 13.4% in 1999. Tax to GDP ratio in India is 14.5%, in Thailand it is 16% and in Malaysia it is 18%. Such a situation will always lead to a budget deficit in Pakistan.

2. Low exports and high imports leading to trade deficit. Greater service import has led to a high current account deficit as well.

3. High fiscal deficit due to high government expenditure on account of subsidies, defence, non development and development etc. IMF conditionality to bring budget deficit down from 7.4% to 4.2% is criminal at this state. It means Rs. 300 billion per year. This will hurt the common man. To reduce fiscal deficit government had increased GST and attached petroleum development levy on POL products. In 2005 petrol was sold at Rs. 50/ liter and today even after the removal of subsidy the price of petrol is Rs. 57/ liter. This shows the benefit has not been passed to the consumers. Had the government option to keep budget deficit to 6%, the consumers would not be this badly perturbed and GDP growth would not have been compromised.

4. As Pakistan does not have a high credit rating, no country is willing to give it loan. This time Friends of Pakistan (FoP) pushed it to IMF. It was a trap like situation. Pakistan had no option but to go to IMF. Now FoP is extending $5.28 billion for 2 years but the loss incurred from War on Terror amounts to $8.8 billion in 2008 alone. Hence FoP loans do not suffice.

5. The global slogans of privatization, liberalization and deregulation that came in 1990s have failed as seen in the aftermath of the global financial crisis. Mr. Siddiqui cites this as a failed policy and says it is harmful in the long run. In the banking sector, it has resulted in loss to depositors who get low returns while banks play on huge banking spreads (7-8% in 2005), engage in speculative activity and have formed cartels to ensure profitability. The profits of banking sector increased from Rs. 7 billion in 2000 to Rs. 123 billion in 2006. The ROE of MCB alone was 59% in 2006. Yet the benefit was not passed onto consumers as the rate of return is way below the inflation rate.

6. One of the major weaknesses in Pakistan is that it continues to depend on external sources of inflows for financing needs including remittances and portfolio investment. Pakistan needs FDI in industries, which is a long term investment while the external sources of investment are temporary and can be pulled out at any time.

7. Also political motivations have been behind the pursuance of IMF programs. To transfer the blame from their regimes, some governments entered into IMF contracts known as the "Blame IMF Syndrome" by Dr. Ishrat Hussain. In Zia's time, at the end of the tenure IMF contract was signed and same is the situation now. The caretaker government signed the contract. The new government has little choice but to continue.


Dr. Shahid Siddiqui has given a thirteen point agenda to achieving macro-economic stability:

1. Tax to GDP ratio has to be brought up to 15%. There can be no compromise on that. Dr. Siddiqui said that a very simple mechanism to increase taxes could be to simply pass a law stating that anyone with a yearly income of Rs. 300,000 and above is liable to pay income tax. This will automatically bring many under the tax net.

2. GST should not exceed 5% as excessive GST levels result in inflation.

3. Unproductive expenditure should be reduced by 40%. This includes travel and other expenses of ministers, expenses in maintaining President House etc. Also there is unnecessary enrollment of people in government offices which can be cut down without affecting productivity.

4. Encourage growth of SMEs through microfinance and provide vocational training. This will create employment for rural sector of the economy.

5. Government should in the short term spend 2% of GDP on education in the short term and then increase that figure up to 6% of GDP.

6. Similarly, health expenditure should be increased to 2% of GDP in the short term and then to 4% of GDP.

7. The rate of return provided by banks to depositors should be greater than the inflation rate.

8. The banking spread should be restricted to 3.5%.

9. No policy related loans should be taken. (Pakistan should not resort to IMF).

10. Banks in Pakistan should offer high interest rates on foreign currency accounts to attract overseas Pakistanis to maintain their accounts here. This can plug foreign exchange gap without requiring Pakistan to go to IMF.

11. From 1947-1992, there was a law that no resident Pakistani could maintain an account of more than $1000 out of the country. This should initially be made compulsory for Parliamentarians and their family members. When Parliamentarians and bureaucrats will maintain accounts domestically, it will create confidence. People will not fear freezing of their assets and will maintain accounts within Pakistan. Dr. Siddiqui quoted that even many resident Pakistanis have shifted their accounts abroad. This is a worrisome state of affairs.

12. Imports should not be allowed to exceed exports.

13. Non quality FDI should be banned. FDI is fruitful as long as it reduces imports and stimulates exports. In Pakistan the largest chunks of FDI flow into the banking sector and Telecom sector. As most of these companies are foreign based, the profits are expatriated back. Among top 7 banks, at least 4 are owned by foreign entities.


1. There is nothing wrong with IMF programs as such but the way the programs are implemented is wrong. The IMF officials give broad objectives to accomplish but do not tell the "how" part. It is left to the government's interpretation and policy making.

2. One aspect of policy Mr. Bengali was at odds with was neo-liberalization. He said this has created a lot of problems. First of all the privatization processes have largely remained undervalued. Moreover, private capitalists do not purchase an industry with an intention to run it but to make profits on the land. They sell the land for housing projects and the industrial work is neglected. Some privatization processes have been disastrous like Millat Tractors, PTCL. Most of these processes are undervalued like the Pakistan Steel Mill (the decision had to be reversed).

3. There is nothing wrong with high interest rates. In fact high inflation has made the real interest rates negative. What is actually driving up cost of production is mismanagement, energy crises, extortion losses and tax burdens.

4. Mr. Bengali suggests that fiscal policy should be in line with the monetary policy. The sales tax rates should be reduced. This will significantly drive down cost of production.

It must be noted that both the economists have almost similar views. They both express dissatisfaction with the philosophy of privatization, liberalization and deregulation. Also they both blame mismanagement and poor governance of the government as the major factors that have left the economy in shreds. They suggest very simple measures, which if implemented, can free Pakistan from the clutches of stringent IMF programs and the massive debt burden that accompanies it.



"Argentina was plunged into a devastating economic crisis in December 2001/January 2002, when a partial deposit freeze, a partial default on public debt, and an abandonment of the fixed exchange rate led to a collapse in output, high levels of unemployment, and political and social turmoil"

Argentina has been one of the most controversial recipients of the IMF. The country and the institution have gone through a spiraling success and then a blinding failure. It has also been the top IMF borrower during the period 1947-2001, as shown below:

During the nineties, Argentina was the poster child of the IMF when it was a booming economy that was tamely following the neo-liberal and free market policies given by the IMF. In December 2001, Argentina was struck hard by a disastrous economic crisis for which it bluntly blamed the IMF. The government of the country was not wrong in doing that, since the IMF ignored Argentina's inflating indebtedness during the 1990's and kept lending it money and thus increasing its economic bubble at a much higher rate than was sustainable. This economic bubble was entirely dependent upon international investment and confidence and teetered dangerously whenever there was news of a potential mishap in the foreign markets.

As was anticipated by the economic gurus of the world, the downfall started in 1998 due to the worsening of the Asian, Russian and the Brazil economy. Argentina was hit hard when the devaluation of the Brazilian Real meant that Argentine could not compete with its neighbor's excessively cheap exports. Another reason was that the government stuck to its decision of maintaining the fixed rate of one peso for one U.S. dollar. Since the U.S. dollar was overvalued this led to the Argentine peso being overvalued as well. Therefore, the overvalued currency made its exports too expensive and its imports artificially cheap .The exchange rate issues also led the interest rates in Argentina to soar high.

The IMF was blamed of not controlling the crisis at its onset and of making it worse by lending Argentina billions more to uphold its economy for the time being. Instead the IMF should have slowly deflated the bubble economy that had been created because of the rapid growth in the nineties. The situation worsened when in 2001, the authorities in Argentina imposed a partial deposit freeze and took money from pension funds to make debt payments to the IMF. On the fateful day of 20th December, 2001, Argentina's debt became unsustainable and it defaulted on a 141 billion-dollar debt.

As a result, people lost their entire life savings and marched through the streets for justice. There was extreme social unrest that led to five interim presidents unsuccessfully trying to control it. There was a recession in the country with almost 50 percent of the population becoming completely unemployed or underemployed.

On May, 2002 the government of Argentine negotiated a new rescue package with the IMF, where it would be lent billions of dollars to service its debt. This package came with a cost that required a further cut in the government spending.

The figure below shows the highest ‘repayments and charges' in 2001 that is followed by a large disbursement by the IMF in 2002. The credit outstanding was increasing sharply but it started stabilizing after 2002 due to the rescue package negotiated between Argentine and the IMF.

Currently, Argentina is calling for a one hundred percent debt cancellation. This will help the country to recover rapidly and ensure a healthy economy and society in the future.


"The number of Russians in poverty has risen from 2 million to 60 million since the IMF came to post-Communist Russia. Male life expectancy has dropped sharply from 65 years to 57. Economic output is down by at least 40 percent"

Russia was the largest borrower of the IMF between 1992 and 1999. Since 1992, the IMF has lent Russia over $40.6 billion. These loans were not used properly because of high corruption and mismanagement. Instead the IMF was blamed of political meddling, showing incompetence, and of making Russia's economic problems worse when in fact, both Russia and IMF were responsible for the resulting catastrophe.

The IMF willingly provided successive bailouts to the Russians without ensuring that they met the stated goals or not. New economic reforms were a part of each IMF loan and even when these reforms were not up taken, the IMF continued to give its tranches .In a way, the tranches helped Moscow to delay the implementation of the stated reforms while the IMF kept compensating them for not taking the urgently required reforms.

The Russian officials continued to pocket hefty amounts from the tranche instead of using it as an aid in trimming the budget, modifying the tax code and tax collection systems, implementing land reforms, and providing an environment to retain capital and attract foreign investment in the country.

Since 1999, Russia has not taken any loan from the IMF. Instead, a recent news happening is that the Russian government may lend a considerable amount for the IMF's anti-crisis program to combat the current global financial collapse. If this takes place then Russia will become a donor of the IMF for the first time in history.


India and the IMF have had positive relations since India became its member in 1945. India has not been a frequent user of the IMF resources, but its loans have been fundamental in helping India improve its balance of payments position twice, one in 1981-82 and another in 1991-93. Besides that India has taken loans from the IMF on several other occasions, such as:

 SDR 3,260,405,000 in 1992

 SDR 3,584,905,000 in 1993

 SDR 2,763,180,833 in 1994

 SDR 1,966,633,125 in 1995

 SDR 1,085,250,003 in 1996

 SDR 589,791,667 in 1997

 SDR 284,916,664 in 1998

 SDR 38,500 in 1999

In 2003, India turned from a debtor to a lender of the IMF, because of its strong reserves and balance of payments position. It has made a contribution of $498 million to the IMF.

"The Reserve Bank of India's latest figures show that India's official reserve assets with the IMF had risen to $1,312 million till January 2004"


"Under the IMF's Highly Indebted Poor Countries (HIPC) debt relief program, Senegal has benefited from eradication of two-thirds of its bilateral, multilateral, and private-sector debt"

Senegal is a poor country in Western Africa. In the past twenty years, the policies of the IMF and World Bank have not been successful in reducing poverty in this region. The structural adjustment has been marked by stagnant economic growth showing dismal performance in most of the social indicators and very slight improvements in some.

A few statistics will exemplify this point. Over the past ten years, the percentage of undernourished Senegalese population has increased from 23 percent in 1990-92 to 25 percent in 1998-00. Also 80 percent of the population has to live on less than $2 per day. Senegal has a very low development rate compared to other countries in the African continent which has inadvertently led to its decline in the human development index as well. In 2001, Senegal was admitted in the Least Developed Countries (LDC) which was after around twenty years when the World Bank and the IMF had first laid down the economic reforms for Senegal to follow .

During the mid-1970s, Senegal suffered continuous droughts along with external shocks, like unsustainable debt levels, that eventually led to economic recession in the country. The government had no other option but to go to the IMF and the World Bank for aid. To this day, Senegal is dominated by their policies and their Structural Adjustment Programs.

The early 1980s witnessed an increasing debt burden and poverty levels, despite the help from these institutions. This was leading to the deterioration of the economic and social situation. Based on the stated reforms, trade liberalization and deregulation was under taken which led to the collapse of the two main sectors of Senegal, agriculture and industrial. The agriculture sector employs more than 70 percent of labor and the liberalization policies affected it severely by flooding the local market with cheap and subsidized imports.The situation continued till the nineties when finally in June 2000, Senegal entered into the Heavily Indebted Poor Countries (HIPC) Initiative. It was supposed to help the country relieve its debt burden but it did not make much difference.

"In 2002, the external debt accounted for 70 per cent of the country's Gross Domestic Product (GDP) and for more than 200 per cent of its export revenues"



It is a nation that recently has "graduated" from the IMF program. The country had 9 collaborations from 1980-1993 and repaid the loan in 1997. In the late 1970s, Morocco faced turmoil as global recession and declining phosphate prices led to sharp declines in exports and revenues. At the initial stance, the government continued its spending which resulted in large deficits financed by external borrowing on commercial terms. The imbalances led to the initiation that the Morocco country joined the IMF program. "In 1981, the external current account deficit exceeded 12 percent of GDP, while the central government budget deficit reached 14 percent of GDP." Beside that, Morocco had major structural weaknesses including large government regulation on consumer prices and credit allocation and large correlation to exogenous shocks due to its dependence on the agricultural sector and phosphate exports.

Until 1985, IMF programs focused on fiscal adjustment. This included large reductions in capital spending and public sector wage restraint, tight monetary policy through credit controls, and a flexible exchange rate. The program was focused on making the fiscal position stronger, while the nominal exchange rate was fixed in relation to the basket of currencies of Morocco's principal trading partners.

IMF program implementation was somewhat mixed. Despite slippages during times, particularly related to fiscal targets, policies on critical issues continued to move in the correct direction but not at the pace predicted by the program. Monetary aspects were generally strong and there was a correct direction being maintained due high degree of commitment by the economic team, the government, and a high degree of political stability. Interviews with staff communicate that the strength of the civil service was also a major factor in effective implementation of the reform.


Jamaica is a former user of IMF resources that decided not to seek further support from the IMF. Since 1960s, Jamaica has had 4 extended arrangements with the IMF. The last expired in March 1996 where the government announced its independence from the IMF. The decision was made due to unsuccessful reach of set goals and ineffective preparation of a macroeconomic program. At that time, Jamaica still faced large adjustment dilemmas. "Public debt was high; inflation was over 20 percent; the real effective exchange rate was appreciating under the combined impact of sizable wage increase in the public and private sectors."

The IMF responded with a policy that included an adjustment of the exchange rate to contribute to higher sustainable growth. It was also recommended on a workout strategy for the financial sector that involved the separation of insurance companies from banks. The Jamaican authorities however rejected this plan. They argued that devaluation of their currency would accelerate the wage-price spiral and the best method would be through a tight monetary policy. In evaluation of this decision, it was found that the strategy pursued by Jamaica was successful since they were committed. Given that Jamaica faced lots of stagnation in the past and the financial sector crisis, any adjustment made directly would take effect in long term with or without IMF support.

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