Introduction
In the 21st century’s neo-liberal globalized landscape, Pakistan’s economy has also been largely dependent on major powers like the United States. It has been subjected to the imperialist motives of the capitalist states. Such dependency is attributed to using foreign direct investments (FDI), loans, and the export of goods and services to capitalist economies. The local government assists in the enactment of this neoliberal paradigm by making sure that domestic policies are in line with these capitalist forces.
As a result of all this, Pakistan has failed to prosper economically and has been subjected to foreign aid. Every few years, Pakistan has to knock on the door of institutions like the International Monetary Fund (IMF) for new loans. This over-dependency on foreign aid and loans, followed by the misuse of these loans, has unveiled the fragility of the state and the weak decision-making power of the government. Moreover, poverty has been a rising issue in Pakistan since its independence. This has been associated with global inflation and the passing of global energy prices to end consumers, which have further complicated Pakistan’s economic landscape. Such factors also depict the negative consequences of being reliant on neoliberal institutions.
IMF as a Neoliberal Institution
The creation of the IMF was a result of the Great Depression of the 1930s and the end of World War II. It was formed after the Bretton Woods Conference in order to promote international cooperation and to provide loans to member nations that were economically weak and unable to recover from the loss. The IMF was intended to help maintain the stability and security of the international economy and promote prosperity among nations.
With time, it has become dominated by neoliberal policies, which were first introduced in the Washington Consensus. There are three main principles upon which neoliberal policies work and the IMF makes use of these core principles as part of its structural adjustment programs (SAPs) and loan conditionalities. These principles are deregulation, liberalization, and privatization.
The IMF uses deregulation to develop a competitive market by opposing restrictions on free market operations. It aims at making the market more effective and efficient but this sometimes involves the elimination of regulatory measures, which are leading factors in financial crises. The second principle, liberalization, focuses on the free flow of goods and services across borders and the IMF aims at liberalizing the state’s economies by opening them up to international trade and FDI to foster development.
Although liberalization policies can help attract foreign investors and technology transfer, they can exert a huge amount of pressure on the domestic market by creating a competitive environment that can lead to low wages, letting go of workers, and even closing industries. The third principle of privatization is considered by the IMF to be beneficial for industries in terms of productivity, effectiveness, and competitiveness. However, the privatization of industries brings a lot of socioeconomic disparities for the weak nations, such as low wages for workers, leading to a poverty crisis.
The Neoliberal Agenda of IMF in Pakistan
With the aim of solving the economic crisis within Pakistan, the IMF has provided Pakistan with SAPs designed to stabilize the economy of Pakistan. The SAPs are governed by some principles. These include fiscal austerity measures, privatization, deregulation, liberalization of the trade market, and monetary tightening. The first SAP was introduced in 1980 in Pakistan. These programs are still being introduced in Pakistan; however, these programs come along with a lot of conditionalities.
The focus of the SAPs has been on budget constraints, the opening of new markets, and marketization. During the 1988–1993 programs, the state-owned companies were sold off and subsidies were removed. The SAPs in 2000 focused more on the privatization of industries and the reduction of workers in the public sector. Fiscal and monetary policies were brought to check the macroeconomic imbalance in the programs introduced later. In 2019, the energy sector was liberalised along with enhancing the tax collection industry.
The IMF has always encouraged the privatization of state-owned enterprises in Pakistan with the rationale of cutting down on fiscal losses to increase efficiency and bring in private participation. For instance, Pakistan’s Telecommunication Company (PTCL), Distribution Companies (DISCOs), and other energy-related state-owned enterprises were privatized. Moreover, the SAPs also come with austerity measures to cut down budget deficits and restore economic stability in Pakistan. These austerity measures focused on cutting public expenditures, increasing taxes, and monetary tightening. All of these policies under SAPs have come with severe socio-economic implications in Pakistan.
Conditionalities Imposed by IMF on Pakistan (2024)
Pakistan is currently facing pressure from the IMF to privatize several public sector entities, with Pakistan International Airlines and DISCOs at the top of the list. This push for privatization is a part of the new loan being granted to Pakistan which is worth more than $6 billion. The government, in response to this, has affirmed its determination to proceed with the disinvestment of remaining state-owned companies and assets, particularly in the oil, gas, power, and other utility sectors.
As previously explained, privatization is based upon neoliberal principles, where the role of the state is restricted in the economic process of the nation. It is based on the notion that the states should only regulate the industries while owning them with the intention of increasing productivity and profitability. The anticipated impacts of privatization, namely a reduction in the fiscal deficit, a decline in prices, improved efficiency, etc., are not yet realized in Pakistan. The nation still struggles with its economic problems with increased debts, poverty levels, unemployment rates, and the high cost of essential commodities.
The recent attempt by the IMF to revive the privatization process in Pakistan has raised the question of the state’s inclusion in the economy once again. Some critics argue that privatization has certainly not fulfilled its promises; instead, it has increased economic disparity within the region. Unfortunately, the government has cut many of the public sector jobs and the trade union has been severely weakened due to neoliberal policies. The emphasis on the privatization of companies like PIA, Pakistan Railways, Pakistan Steel Mills, and WAPDA has been highly condemned by critics.
Analysis
For the past 30 years, Pakistan’s economy has been tied to the neoliberal agendas and economic policies of the IMF and these policies have only caused underdevelopment across the country since the introduction of the structural adjustment programs (SAPs) in the 1980s. Moreover, instead of taking action or building policies against the austerity measures, the IMF is constantly supporting them, which is severely impacting economic and human development across Pakistan.
The government has been facing consistent issues due to the insistence of the IMF on debt repayments for health, agriculture, climate action, and education. Furthermore, the colonial past of Pakistan and the colonial origins of the IMF have caused Pakistan’s government to have a limited amount of representation and decision-making powers within the international institutions, further weakening the government’s autonomy on policies.
There is a dire need for the IMF’s policies and practices to be transformed so that priority is given to the development of the nation, policies are made that are nowhere near austerity, and where tax reforms are supported progressively. A proper systemic transformation can surely serve the nation’s economy in a better way, promoting development and prosperity.
Conclusion
It can be deduced that the main purpose of the IMF is actually to stabilize the global financial system and make sure that the world does not face any sort of financial issues or crises. It also has the purpose of providing loans to nations that are in need; however, the conditionalities attached to these loans undermine the main purpose of the IMF and reveal the Western agenda for the nations in the Global South. The IMF defies its main purpose and tries to make the economies dependent, which is all considered to be part of the neo-colonial and neoliberal agenda of the West.
Ever since it adopted neoliberal policies, nations like Pakistan continue to suffer and they have no other choice but to knock at the door of these financial institutions. As for the future, it seems inevitable for this cycle to end, particularly for the nations in the Global South. The Western agenda continues to play its role in the international realm to ensure its hegemony.
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Minahil Khalid is a student of M.Phil International Relations at Kinnaird College for Women University, Lahore. Her research interests revolve around global political issues and security studies.