Economic agenda

The IMF and the World Bank have been pivotal in bailing out Pakistan, given the country’s economic challenges and developmental needs in recent years. Historically, Pakistan has entered into 23 IMF agreements since 1958, reflecting the country’s long-term reliance on foreign financial assistance to bridge fiscal and structural challenges.

The IMF approved a $6 billion Extended Fund Facility (EFF) in 2019 to support the economic reform programme in Pakistan. The country had initiated reforms like cutting subsidies and raising electricity prices to combat fiscal deficits under this program. Even though the programme stabilised the economy in the short term and enhanced foreign exchange reserves, inflation accelerated to over 12 per cent, which cut into the purchasing power of the common man.

Most recently in 2023, under the leadership and personal commitment of Prime Minister Muhammad Shehbaz Sharif for economic reform, the IMF approved a $3 billion Stand-By Arrangement (SBA) for Pakistan to finance its short-term fiscal and external financing needs. An economic bailout specifically designed to resume macroeconomic stability, reestablish foreign exchange reserves, and obtain sustainable economic growth by following policies of fiscal consolidation, reforms of the energy sector and enhanced tax collection.

The World Bank Group is committed to poverty reduction and sustainable development and is instrumental in supporting Pakistan’s socio-economic growth. Traditionally, it has supported a range of large-scale projects in Pakistan, investing more than $40 billion since the 1950s across sectors such as infrastructure, education, and poverty reduction. Most recently the World Bank intensified its engagement with Pakistan and the visit of Vice President for South Asia Martin Raiser is a reflection of this development endeavour. Although these project areas are designed to advance sustainable development, some issues like slow project implementation and poor capacities for policy reform still exist. Nevertheless, the World Bank has been instrumental in addressing structural challenges and advancing long-term economic resilience in Pakistan.

The IMF’s SBA and the development programmes of the World Bank are collectively tackling Pakistan’s complex economic issues. At the behest of the PML-N administration, the World Bank has launched the Country Partnership Framework (CPF), a new 10-year plan worth $20 billion that will be invested in Pakistan. The initiative focuses on investment in renewable energy, climate resilience, child stunting and policy changes to drive private-sector development in key areas like energy, water, agriculture, finance, manufacturing, and digital infrastructure.

Among the priority projects are the Dasu Hydropower Project, producing 4,320MW of power to decrease dependence on imported fuels, and the Pakistan Resilient Institutions for Sustainable Economy (PRISE) project, focused on improving fiscal management and governance. These are complemented by the IMF program focused on macroeconomic stability by means of policy reforms and fiscal consolidation. At the provincial level, there are a number of targeted development programmes. In Punjab, led by Chief Minister Maryam Nawaz, there are plans to increase education and healthcare access, in addition to urban infrastructure development programs like the Lahore Urban Transport Master Plan. In Sindh, the Sindh Flood Emergency Rehabilitation Project responds to the effects of recent climatically driven disasters with an emphasis on infrastructure reconstruction and supporting affected communities. The Karachi Water and Sewerage Services Improvement Project (KWSSIP) is another strategic investment for the upgrading of water and sewerage infrastructure in the province.

In Khyber Pakhtunkhwa, investment in renewable energy schemes such as micro-hydropower plants serves to increase rural electrification. Likewise, Balochistan has focused on water resource management schemes such as the Pat Feeder Canal Expansion Project for lowering chronic water scarcity. Cumulatively, these initiatives reflect a collective effort by provinces to enhance Pakistan’s resilience to economic and environmental challenges, as well as to foster inclusive growth. However, the success of these plans will hinge on effective implementation, intergovernmental coordination, and the institutional ability to deliver tangible results.

Although one can argue that these IMF and the World Bank projects hold great promise and prospects for Pakistan’s development, they also forecast potential threats to economic and political stability in Pakistan. The burden of additional debt through lending can introduce economic stress with the need for austerity measures that can shrink government expenditure on core services like education and health. Further on, these resulting fiscal changes can face resistance from various sectors of society, further leading to social unrest and political instability.

The structural reforms required by these institutions could also limit Pakistan’s policy flexibility, as economic choices will have to be made to satisfy external expectations rather than attending to necessary domestic concerns.

Moreover, large projects, like the Dasu Hydropower Project, can have the potential for social and environmental impacts, including displacement of populations and ecological disruption capable of affecting local population structures. In addition, ineffective governance and corruption in carrying out the projects can undermine their effectiveness, with the possible consequence of inducing uneven benefit distribution and an increase in national disparities.

The complex interplay between national and provincial governments may create challenges in the coordinated implementation of these projects, with the risk of disjointed efforts and uneven development in different regions. So, while these partnerships are full of promise, they also have problems that must be keenly monitored to make the projects successful in the long term. In this dynamic environment, the Federal Ministry of Planning and Development’s initiative of Uraan Pakistan clearly provides a platform to ensure continuous implementation for the economic development of the country.

The IMF and World Bank’s engagement with Pakistan shows their crucial roles in addressing economic and developmental challenges whether its internal or external. Through financial assistance, technical expertise and policy guidance, these institutions are helping Pakistan navigate a difficult economic landscape while laying the foundation for future sustainable growth. The evolution of these partnerships translates to potential ways to transform not only Pakistan but also the broader South Asian region, fostering economic and political growth, stability, resilience, and prosperity. However, for any success in both human and sustainable economic development, the country needs continuous political consensus and leadership commitment to drive the economic reform agenda.

The writer studies at the University of California, Davis. He can be reached at: mwaqar@ucdavis.edu