KARACHI: The Institute of Cost and Management Accountants (ICMA) has shed light on the vital yet intricate role played by the International Monetary Fund (IMF) in supporting developing economies.
While the IMF’s lending programs and policy guidance have fostered economic stability and growth across the globe, some nations, like Pakistan, have found themselves trapped in a vicious cycle of dependency, repeatedly seeking bailouts from the lender i over decades, a comprehensive research paper said.
The ICMA paper outlines the various IMF lending facilities tailored to member countries’ specific needs, ranging from Stand-By Arrangements for short-term balance of payment issues to Extended Fund Facilities for long-term challenges and emergency assistance through instruments like the Rapid Financing Instrument.
Several case studies highlighted in the paper illustrate the successful utilisation of IMF programs by countries in overcoming economic crises and achieving fiscal sustainability. In 2015, Ghana received a $918 million IMF loan to address escalating deficits, high inflation, and currency devaluation. By implementing IMF-recommended fiscal reforms, strengthening monetary policy, and improving the banking sector, Ghana managed to boost its economic growth rate to an impressive 8.8% by 2019 while bringing inflation down to 8%.
Serbia’s remarkable turnaround serves as another testament to the IMF’s efficacy. With economic guidance, regulatory advice, and preventive financing from the IMF, Serbia recovered from economic stagnation in 2014, which was caused by weak institutions and excessive spending. By 2017, the nation had transformed from having one of Europe’s highest fiscal deficits to recording a surplus.
The paper also showcases the positive impact of IMF interventions in Ireland and Jamaica. In the wake of a financial crisis in 2010, Ireland received a €67.5 billion IMF/ EU bailout and implemented austerity measures and reforms, leading to increased investment and a sharp decline in unemployment by 2012. Similarly, Jamaica’s extended IMF program from 2013 to 2019 enabled the country to achieve fiscal sustainability, reduce public debt below 100% of GDP, and strengthen its financial sector through tax reforms.
However, the ICMA paper highlights Pakistan’s tumultuous relationship with the IMF, underscoring the nation’s persistent economic instability and reliance on external assistance. Since joining the IMF in 1958, Pakistan has received over 20 bailouts, with the latest being a $3 billion package secured in 2023, reflecting the country’s entrenched cycle of dependency.
To break free from this cycle, the IMF has recommended a comprehensive set of measures for Pakistan, including reducing domestic borrowing costs, focusing investments on productive sectors like manufacturing, continuing the privatization of state-owned enterprises, developing a robust Sukuk market, increasing direct tax revenue, streamlining the federal government, implementing robust monetary and fiscal policies, seeking international expertise, and leveraging global support for capacity-building.
As developing nations grapple with economic challenges exacerbated by global crises, the IMF’s support remains crucial in providing a lifeline, it said. However, the ICMA paper emphasises the need for long-term sustainable solutions tailored to each country’s specific circumstances to prevent a perpetual dependence on international bailouts and foster genuine economic resilience.
Copyright Business Recorder, 2024