TABLE OF CONTENTS:

  • INTRODUCTION
  • FORMATION
  • STRUCTURE 
  • BOARD OF GOVERNANCE
  • MEMBERSHIP
  • OBJECTICVE
  • RANKING IN IMF ON PAKISTAN 
  • CRITICISM IN PAKISTAN ON IMF
  • HOW HAS THE IMF RESOPONDED TO CRITICISM AND ADJUSTED ITS PROGRAMS IN PAKISTAN

                             INTRODUCTION

International Monetary Fund (IMF) is a major financial agency with 190 member countries. IMF was established to promote global economic growth, financial stability, international trade while reducing poverty worldwide. It was established in 1944 during the Bretton Woods Conference with the aim of rebuilding the International monetary system after World War II. The IMF’s primary purpose is to ensure the stability of the International monetary and financial system, which does by the monitoring the global economy, providing policy advice, financial assistance, and capacity development to its member countries. The IMF is Governed by and accountable to its member countries.  IMF provides policy advice to help stabilize economies, it helps in the prevention of financial crises by financial support to countries hit by crises to create breathing room as they implement policies that restore economic stability and growth. IMF lending is continuously refined to meet country’s changing needs.
                                              KEYWORDS
Global Economic Growth, Reducing Poverty, Stability, Policy Advice

                               FORMATION

The International Monetary Fund (IMF) was established in 1944 in the aftermath of the Great Depression of the 1930s. Let’s explore the historical context that led to its formation:
After World War I, the Paris Peace Conference (1918) considered a blueprint for restoring prosperity and world peace through U.S. President Woodrow Wilson’s 14 Points. Unfortunately, key parts of this blueprint were cast aside when delegates agreed on the terms of the Treaty of Versailles. Within a decade, prosperity was lost, and another decade later, peace was gone as well. The failure to lay the groundwork for economic cooperation among the world’s great trading nations contributed to this outcome.
The Great Depression (1929) amplified the negative consequences of the Treaty of Versailles. International trade collapsed, and domestic policy errors deflated both output and prices globally. The inability to prevent economic downturns and coordinate policies among trading nations highlighted the need for a new international economic system.
In July 1944, delegations from 44 countries met at Bretton Woods, New Hampshire. Their goal was to establish institutions to govern international economic relations after World War II. The International Bank for Reconstruction and Development (now the World Bank) aimed to restore economic activity. The IMF aimed to restore currency convertibility and multilateral trade. The motivating principle was to prevent a relapse into autarky and protectionism, fostering postwar economic growth and stability.
Economist John Maynard Keynes (British delegation) and Harry Dexter White (U.S. delegation) played crucial roles in shaping the IMF’s charter. Their vision was to create an institution that would prevent a recurrence of the Great Depression and promote global economic cooperation.

                             STRUCTURE

The IMF’s governance structure involves collaboration between the Board of Governors, the Executive Board, and the Managing Director, ensuring effective decision-making, financial stability, and global economic cooperation. 
Board of Governors:
The Board of Governors is the highest decision-making body of the IMF. It consists of one governor and one alternate governor for each member country. Governors are usually the minister of finance or the head of the central bank in their respective countries.
countries.
While most powers have been delegated to the IMF’s Executive Board, the Board of Governors retains the right to:
Approve quota increases.
Allocate special drawing rights (SDR).
Admit new members.
  • Compulsorily withdraw members.
Amend the Articles of Agreement and By-Laws.
The Board of Governors also elects or appoints executive directors and has the final say on issues related to the interpretation of the IMF’s Articles of Agreement. Voting by the Board of Governors typically occurs through mail-in ballots.
The Boards of Governors of the IMF and the World Bank Group meet once a year during the IMF-World Bank Annual Meetings to discuss their institutions’ work and make decisions.
  • Executive Board:
The day-to-day work of the IMF is overseen by the 24-member Executive Board. The Executive Board represents the entire membership and is supported by IMF staff. It plays a crucial role in decision-making, policy formulation, and operational matters. The Managing Director is the head of the IMF staff and serves as the Chair of the Executive Board. The Executive Board discusses and approves various policies, programs, and financial assistance packages for member countries.


  • Managing Director and Staff:
The Managing Director leads the IMF staff. The Managing Director is assisted by a First Deputy Managing Director and three other Deputy Managing Directors. Together, they manage the day-to-day operations of the IMF, including policy implementation, financial assistance, and technical assistance to member countries

                                        MEMBERSHIP

As IMF’S inception in December 1945, the International Monetary Fund (IMF) had 29 member countries whose governments had ratified the Articles of Agreement. These original members came together during the Bretton Woods Conference with the goal of reconstructing the international monetary system after World War II. Since then, the IMF has expanded its membership to include 190 countries. Membership in the IMF reflects a commitment to collaborative International economic and financial stability and growth.
  • Criteria of becoming a member:
To become a member of the IMF, a country must:
Be a country in control of its own foreign affairs.
Agree to the code of conduct found in the IMF’s Articles of Agreement.
Pay a quota subscription, which is a financial commitment based on the country’s relative size in the world economy.
Refrain from restrictions on the exchange of its currency for foreign currencies.
Provide the IMF with information on its financial, fiscal, economic, and exchange policies that have international ramifications.
Strive for openness in economic policies that affect other countries.

                                      OBJECTIVE


The IMF is dedicated to fostering global monetary cooperation and securing financial stability. Its main objectives include the following:
Promoting International Monetary
Securing Financial Stability
Facilitating International Trade
Promoting High Employment and sustainable Economic Growth
Reducing Poverty

  • Promoting International Monetary
The IMF provides a forum for international cooperation on monetary problems. It facilitates the balanced growth of international trade, which contributes to job creation and economic prosperity.
  • Securing Financial Stability:
By monitoring economic and financial developments, the IMF advises countries on policy actions that can contribute to financial stability. It helps manage and prevent crises in the international monetary system through regular dialogue with governments.
  • Facilitating International Trade:
The IMF supports policies that enable countries to maintain a stable trade environment. It encourages open, stable, and transparent trade policies, which are key for economic growth and resilience.

Promoting High Employment and sustainable Economic Growth
The IMF’s policy advice is aimed at fostering economic policies that lead to high levels of employment and sustainable economic growth.
It assesses economic conditions and recommends policies that enable sustainable growth.

  • Reducing Poverty:
The IMF works to reduce poverty around the world by providing loans and concessional financial assistance to member countries experiencing balance-of-payments problems. It also offers technical assistance and training to help governments implement sound economic policies that can lead to poverty reduction. 

Ranking of Pakistan on IMF’s List
Pakistan is ranked 52nd on the IMF’s global poverty index.

Criticism in Pakistan on IMF

The International Monetary Fund (IMF) has faced criticism in Pakistan for several reasons, particularly concerning the perception of imposing stringent fiscal policies. These criticisms reflect the challenges and debates surrounding the role of the IMF in Pakistan, where the need for financial support is weighed against the desire for economic autonomy and the pursuit of policies that are in the best interest of the country’s long-term development. Here are the main points of criticism:

  • Austerity Measures: The IMF often requires countries to implement austerity measures as a condition for financial assistance. In Pakistan, these measures have included tax hikes and spending cuts, which have been unpopular with the public and have led to concerns about their impact on economic growth and social welfare.
  • High Downside Risks: The IMF has warned of exceptionally high downside risks for Pakistan’s economy, which has raised concerns about the potential negative consequences of IMF programs on the country’s economic stability.
  • Long-Term Debt Sustainability: Critics argue that the IMF’s lending practices, including the provision of large bailout packages, may not address the structural problems that lead to economic crises, potentially resulting in a cycle of dependency on IMF loans.
  • Impact on Social Spending: There is a perception that the conditions attached to IMF loans, such as fiscal consolidation, can lead to reduced social spending, affecting healthcare, education, and other vital public services.
Influence on Domestic Policies: The IMF’s involvement in economic policymaking is sometimes seen as an infringement on national sovereignty, with critics claiming that the Fund’s policy prescriptions do not always align with the country’s own development goals.
  • Economic Conditions: The IMF’s recent scrutiny of Pakistan’s budget and the criticism that it falls short of the targets set by its bailout program cast doubt on the country’s ability to meet the conditions required for continued financial support.

How has the IMF responded to criticism and adjusted its programs in Pakistan?

The International Monetary Fund (IMF) has made several adjustments to its programs in Pakistan in response to criticism and economic challenges.
Here are some key points:
First Review Under the Stand-by Arrangement (SBA)
Second and Final Review Under the Stand-by Arrangement (SBA)
IMF Conditions and Reforms
  • First Review Under the Stand-by Arrangement (SBA):
In January 2024, the IMF completed the first review of Pakistan’s economic reform program under the SBA. The decision allowed for an immediate disbursement of around $700 million. Economic activity had stabilized, but the outlook remained challenging and dependent on the implementation of sound policies. Strict adherence to fiscal targets, protection of social spending, a market-determined exchange rate, and further progress on structural reforms were emphasized.

  • Second and Final Review Under the Stand-by Arrangement (SBA):
In April 2024, the IMF completed the second and final review of Pakistan’s economic reform program supported by the SBA. The review allowed for an immediate disbursement of SDR 828 million (around $1.1 billion), bringing total disbursements under the arrangement to SDR 2.250 billion (about $3 billion). The authorities’ stronger policy efforts under the SBA supported the stabilization of the economy and the return of modest growth. To move Pakistan from stabilization to a strong and sustainable recovery, the authorities need to continue their policy and reform efforts, including strict adherence to fiscal targets, protecting the vulnerable, maintaining a market-determined exchange rate, and broadening structural reforms.
  • IMF Conditions and Reforms:
Pakistan implemented several IMF-mandated reforms, including budget adjustments, interest rate increases, and higher energy prices.
The program focused on necessary fiscal adjustment, debt sustainability, external shock absorption, disinflation, and structural reforms in areas such as energy sector viability, state owned enterprise government and climate and resilience.