Introduction
This essay explores the International Monetary Fund (IMF) programs implemented during the tenure of Pakistan’s Pakistan Tehreek-e-Insaf (PTI) government under Prime Minister Imran Khan from 2019 to 2022. By focusing on the Extended Fund Facility ( EFF) approved in July 2019, it examines the specific conditionalities and reforms mandated by the IMF, such as changes in tax structures, currency devaluation, subsidy reductions, and institutional autonomy measures. The analysis further delves into the economic and political impacts of these policies on Pakistan, alongside the public and institutional responses they elicited. Framed within the context of the ideology and constitution of Pakistan, this study considers how economic dependency on international institutions like the IMF intersects with national sovereignty and governance. Through a combination of official reports, policy analyses, and key news events, the essay offers a broad understanding of the challenges and trade-offs faced by the PTI government during this period, while acknowledging the limitations of some data and interpretations.
Details of the IMF Program under PTI Leadership
The PTI government inherited an economy in distress, marked by a Balance of Payments (BoP) crisis and critically low foreign exchange reserves of below $8 billion by mid-2019. To address this, Pakistan entered into a 39-month Extended Fund Facility (EFF) with the IMF, approved on July 3, 2019, for a total amount of SDR 4,268 million (approximately US$6 billion) (IMF, 2019). The core objective of this stabilization program was to reduce the fiscal deficit, rebuild foreign exchange reserves, and address structural imbalances in the economy. This was Pakistan’s 22nd IMF program since 1958, highlighting a recurring dependency on external financial assistance, often at the expense of domestic policy autonomy—a tension deeply relevant to the ideological debates surrounding Pakistan’s constitutional commitment to self-reliance.
Conditionalities and Economic Reforms
The IMF program came with stringent conditionalities, or ‘prior actions’, which Pakistan was required to implement to access loan tranches. These reforms targeted multiple sectors of the economy and are detailed below.
Firstly, a market-determined exchange rate was introduced, moving away from a managed float system. Under the guidance of the State Bank of Pakistan (SBP), the Pakistani Rupee (PKR) depreciated significantly, falling from approximately 121 PKR/USD in August 2018 to 160 PKR/USD by June 2019, and further to over 204 PKR/USD by June 2022 (State Bank of Pakistan, 2022). While this aimed to correct trade imbalances by making exports more competitive, it also increased the cost of imports, fueling inflation—a significant concern for the average Pakistani citizen.
Secondly, tax structure reforms were central to the IMF agenda. The Federal Board of Revenue (FBR) introduced measures such as the Computerized National Identity Card (CNIC) condition for purchases over PKR 50,000 to document the informal economy. Moreover, the Finance Supplementary Bill 2021, often termed the ‘mini-budget’, eliminated tax exemptions worth PKR 343 billion on essential goods like pharmaceuticals and food items (Dawn, 2022). These steps sought to raise the tax-to-GDP ratio but placed additional burdens on consumers.
Thirdly, energy sector reforms focused on reducing subsidies and addressing the circular debt, which stood at PKR 1.6 trillion in 2019. The government committed to regular tariff hikes for electricity and gas, alongside increasing the Petroleum Development Levy (PDL) to PKR 50 per liter, passing on global oil price shocks to consumers rather than absorbing them through subsidies (IMF, 2019). These measures, while fiscally prudent, were politically contentious.
Finally, institutional autonomy was emphasized through the State Bank of Pakistan Amendment Act 2021, which prohibited the government from borrowing directly from the SBP to finance budget deficits—a practice that historically fueled inflation (State Bank of Pakistan, 2021). This reform aimed to ensure monetary discipline but limited the government’s fiscal flexibility, raising questions about constitutional mandates for economic governance.
Economic and Political Impacts of IMF Policies
Economically, the IMF program initially showed signs of stabilization. As illustrated in the data below, the fiscal deficit decreased from 8.9% of GDP in FY 2019 to 7.1% in FY 2020 (State Bank of Pakistan, 2022). However, the COVID-19 pandemic disrupted this progress, causing a GDP contraction of -0.94% in FY 2020. A V-shaped recovery followed, with GDP growth rebounding to 5.77% in FY 2021 and approximately 6.0% in FY 2022. Inflation, however, surged from an average of 6.8% in FY 2019 to a peak of over 20% in FY 2022, largely driven by currency devaluation and subsidy cuts.
Politically, the IMF-mandated reforms came at a high cost. The consistent rise in fuel and electricity prices became a rallying point for the opposition coalition, the Pakistan Democratic Movement (PDM), which capitalized on public discontent over ‘mehngai’ (inflation). Furthermore, in February 2022, the PTI government introduced a fuel subsidy relief package, diverging from IMF guidelines to salvage political capital ahead of a looming no-confidence motion—a decision that ultimately derailed the program (Dawn, 2022). This move reflects the inherent tension between adhering to international financial commitments and maintaining domestic political stability, a recurring theme in Pakistan’s ideological discourse on sovereignty versus dependency.
Public and Institutional Responses
The public response to IMF reforms was overwhelmingly negative. Traders and small business owners staged nationwide strikes in October 2019 against tax measures like the CNIC condition, arguing that they disproportionately affected the informal sector (Al Jazeera, 2019). Similarly, tariff hikes and the removal of subsidies on essentials fueled widespread protests, as inflation eroded purchasing power, particularly for low-income households.
Institutionally, opinions were mixed. The State Bank of Pakistan and segments of the economic bureaucracy supported reforms like the SBP Amendment Act for promoting long-term stability (State Bank of Pakistan, 2021). However, opposition parties and independent analysts criticized the IMF program for its ‘austerity-first’ approach, arguing that it neglected social safety nets. Reports from institutions like the Pakistan Institute of Development Economics (PIDE) highlight that while fiscal indicators improved temporarily, structural issues such as low tax compliance and energy inefficiencies persisted (PIDE, 2022). This duality reflects broader ideological debates in Pakistan about the role of the state in balancing economic reform with constitutional obligations to citizen welfare.
Conclusion
In summary, the IMF Extended Fund Facility during the PTI government’s tenure (2019–2022) was a critical, albeit contentious, intervention to address Pakistan’s economic crises. Reforms such as currency devaluation, tax restructuring, subsidy cuts, and institutional autonomy measures achieved some fiscal stabilization but at significant economic and political costs, including rampant inflation and public discontent. The tension between adhering to IMF conditionalities and maintaining domestic political stability underscores a deeper ideological conflict within Pakistan’s constitutional framework—namely, the balance between economic dependency and national sovereignty. While the program highlighted the complexities of economic governance, its limited success in addressing structural issues suggests that future engagements with international lenders must prioritize social protections alongside fiscal reforms. This period serves as a cautionary tale for policymakers navigating the delicate intersection of global financial obligations and domestic priorities.
References
- Al Jazeera. (2019) Pakistan traders strike over steps to boost taxes as urged by IMF. Al Jazeera.
- Dawn. (2022) NA passes mini-budget amid opposition’s protest. Dawn.
- International Monetary Fund. (2019) IMF Staff Report for the 2019 Extended Fund Facility. IMF.
- Pakistan Institute of Development Economics. (2022) Pakistan’s Economy under the IMF Program 2019-2022. PIDE.
- State Bank of Pakistan. (2021) State Bank of Pakistan Amendment Act 2021. State Bank of Pakistan.
- State Bank of Pakistan. (2022) Annual Report 2021-2022. State Bank of Pakistan.
