Pakistan vis-à-vis the IMF

With the new allegedly imported government approaching the IMF, let’s take a look at the history of Pakistan with the Fund.

Pakistan has a notoriously rich 61-year history of knocking on the doors of the International Monetary Fund (IMF), spanning from 1958 to 2019. To add more context, the crisis-hit Sri Lanka has approached the Fund 16 times against Pakistan doing the exact 23 times, almost double of Sri Lanka. However, the official data is available for only 22 lending commitments till Feb 29, 2020.

Photo Source: IMF History of Loans to Pakistan

Loans by Expiration

Lending commitments by the Fund comprise an expiration varying from approximately 1–3 years. A breakdown of the data reveals that:

• 54.5 percent of commitments (12) had an expiration of 1 year.
• 18.2 percent of commitments (04) had an expiration of 2 years.
• 27.3 percent of commitments (06) had an expiration of 3 years.

Image by the author. All rights reserved.

Loans by Types

Moreover, of these 22 commitments:

• 54.5 percent (12) are standby arrangements (SBAs).
• 27.3 percent (06) are Extended Fund Facilities (EFFs).
• 13.6 percent (03) are Extended Credit Facilities (ECFs).
• 4.6 percent (01) are Structural Adjustment Facility Commitment.

Image by the author. All rights reserved.

All these loan variants (SBA, EFF, ECF, and Structural Adjustment Facility Commitment) more or less serve the same goal — overcoming the balance-of-payments crisis. The last variant requires policy, tax, and structural reforms, such as increasing the tax, privatization, austerity measures, rolling back subsidies, etc.

How Many Times Did Pakistan Withdraw the Loan Amount?

Finally, of these 22 commitments, Pakistan withdrew the loan amount 21 times except for 1958 — the first time it approached the Fund despite the Fund agreeing to provide 25 million in SDRs (Special Drawing Rights).

What are Special Drawing Rights (SDRs)?

You must have noticed that the author did not place the $ sign before the phrase ’25 million.’ That was intentional on the author’s part. Another thing pertinent to note is that the SDR is not an IMF currency, contrary to the widely-held belief among the populace. Instead, the SDR is a basket of world currencies belonging to the developed nations, including the US Dollar ($), Euro (€), Chinese Yuan (¥), Japanese Yen (¥; yes, it is the same as the Yuan), and Pound Sterling (£).

The SDR rate varies over time. As of July 03, 2019 (the last time IMF granted a loan to Pakistan), the SDR was $1.38. Historically, the SDR rate has always been $1.00 and above. It is contrary to the false claim of the SDR rate being in the range of $0.6–0.7.

Photo Source: IMF SDR Valuation

Worth of Loans in US Dollars

According to the Fund’s data, Pakistan has availed of loans worth 4.837 billion in SDR thus far. But what is the loan amount in US Dollars? Let’s find out.

Before the collapse of the ill-fated Bretton Woods system in 1973, SDR had an exchange value pegged to the gold, equivalent to $1.00. However, due to the pre-1981 SDR rate data being unavailable, the author will assume the SDR rate to be $1.00 from 1973 to 1980.

SDR to USD Conversion Formula

Pakistan withdrew the loan amount** from the Fund on the following dates. You will find some recurring dates:

** Amount = Value in SDR multiplied by the SDR rate. For instance, 4.393 billion multiplied by $1.51 equals $6.633 billion. It is the data for the September 2013 IMF loan. If you have any doubts about the author’s calculation, the official IMF update will validate the author’s inputs.

• Dec 08, 1958: The SDR rate was $1.00. Amount: 0.
• Mar 16, 1965: The SDR rate was $1.00. Amount: $0.037 billion.
• Oct 17, 1968: The SDR rate was $1.00. Amount: $0.075 billion.
• May 18, 1972: The SDR rate was $1.00. Amount: $0.084 billion.
• Aug 11, 1973: The assumed SDR rate is $1.00. Amount: $0.075 billion.
• Nov 11, 1974: The assumed SDR rate is $1.00. Amount: $0.075 billion.
• Mar 09, 1977: The assumed SDR rate is $1.00. Amount: $0.080 billion.
• Nov 24, 1980: The assumed SDR rate is $1.00. Amount: $0.349 billion.
• Dec 02, 1981: The SDR rate was $1.17. Amount: $0.854 billion.
• Dec 28, 1988: The SDR rate was $1.34. Amount: $0.260 billion.
• Dec 28, 1988: The SDR rate was $1.34. Amount: $0.512 billion
• Sep 16, 1993: The SDR rate was $1.43. Amount: $0.126 billion.
• Feb 22, 1994: The SDR rate was $1.40. Amount: $0.172 billion.
• Feb 22, 1994: The SDR rate was $1.40. Amount: $0.241 billion.
• Dec 13, 1995: The SDR rate was $1.48. Amount: $0.436 billion.
• Oct 20, 1997: The SDR rate was $1.36. Amount: $0.361 billion.
• Oct 20, 1997: The SDR rate was $1.36. Amount: $0.154 billion.
• Nov 29, 2000: The SDR rate was $1.28. Amount: $0.595 billion.
• Dec 06, 2001: The SDR rate was $1.26. Amount: $1.085 billion.
• Nov 24, 2008: The SDR rate was $1.48. Amount: $7.305 billion.
• Sep 04, 2013: The SDR rate was $1.51. Amount: $6.633 billion.
• Jul 03, 2019: The SDR rate was $1.38. Amount: $1.440 billion.

Loans Taken by Governments

Summing it up, the withdrawn loan amount thus far stands at $20.949 billion. If we were to breakdown the loan amount withdrawn by the respective governments, it would look something like this:

• The Ayub Khan-led government took IMF loans on two (02) occasions worth $0.112 billion from 1958 to 1968. It constitutes a meager 0.54 percent share of the total IMF loans.
• The Zia-ul-Haq-led regime took IMF loans on two (02) occasions worth $1.203 billion from 1980 to 1981. It constitutes a 5.74 percent share of the total IMF loans.
• The PMLN government took IMF loans on four (04) occasions worth $7.274 billion: $0.126 billion in 1993, $0.515 billion in 1997, and $6.633 billion in 2013. It constitutes another significant 34.72 percent share of the total IMF loans.
• The Musharraf-led regime took IMF loans on two (02) occasions worth $1.680 billion from 2000 to 2001. It constitutes an 8.02 percent share of the total IMF loans.
• The PTI government took IMF loans on a single occasion worth $1.440 billion in 2019. It constitutes a 6.87 percent share of the total IMF loans.

Image by the author. All rights reserved.

Originally published at https://rafeyirahman.substack.com on April 27, 2022. If you liked this or learned something new, please consider subscribing to Finesse for more financial literacy posts.