International Monetary Fund (IMF)

Introduction to the IMF:

The International Monetary Fund (IMF) is an international financial institution established to foster
global monetary cooperation, exchange rate stability, balanced trade relationships, and financial
stability. It plays a critical role in promoting economic growth and stability worldwide.
The IMF was created on July 22, 1944, at the United Nations Monetary and Financial Conference,
commonly known as the Bretton Woods Conference. The IMF has 190 member countries.
operational in 1945
Genesis of the IMF:
i. The Bretton Woods Conference (which created the IMF) took place in July 1944 in Bretton
Woods, New Hampshire, USA. It brought together representatives from 44 Allied nations
during World War II to design a post-war international monetary and financial system.
ii. Rationale for creating IMF were:
i. Economic Stability: The world had experienced economic instability, trade
imbalances, and currency fluctuations during the interwar period, leading to the
Great Depression (1929-1939). There was a recognized need for an institution to
promote stability and prevent such crises.
ii. Reconstruction and Development: The post-war period required financial assistance
for reconstruction and development efforts. The IMF was envisioned as a key
institution to provide monetary cooperation and financial support.
Mandate of the IMF:
Surveillance and Economic Analysis / Policy advice
The IMF conducts regular economic assessments of its member countries through surveillance. It
provides policy advice based on its analysis and monitors global economic trends to identify potential
risks and challenges. to state bank and MOF to make good and resilient policies
Financial Assistance
The IMF provides financial assistance (loans/bailout packages) to member countries facing balance of
payments problems. Member countries can borrow from the IMF to address short-term economic
challenges, stabilize their currencies, and implement necessary economic reforms.
Capacity Development
The IMF supports the capacity development of its member countries by providing technical assistance
and training. This includes helping countries strengthen their economic institutions, financial systems,
and policy frameworks. to improve structural capacities of a country

Financial Assistance/Loans:
Part I: Balance of Payment Deficit
Definition
A balance of payments deficit occurs when a country's expenditures on imports, foreign aid, and
other international transactions exceed its earnings from exports and financial inflows. It reflects a
situation where a nation is spending more on foreign goods and services than it is earning through
its exports and other sources.
Reasons for Balance of Payment Deficits:
- Trade Imbalances: If a country imports more than it exports.
- Foreign Debt Payments: High payments on external debts.
- Decrease in Foreign Investment: A decline in foreign investments or capital inflows.
- Economic Downturn: Economic recessions can lead to reduced export demand.
 Part II: Why Countries Seek IMF Assistance for Balance of Payments Issues
Reasons for Seeking IMF Assistance:
i. External Shocks: Countries may face external shocks, such as a sudden rise in oil prices
or a global economic downturn, leading to a strain on their balance of payments.
ii. Structural Weaknesses: Issues like poor economic governance, inadequate policy
frameworks, or structural weaknesses may contribute to persistent balance of payment
deficits.
iii. Currency Crises: When a country experiences a currency crisis, with a sharp
depreciation of its currency, it may seek IMF assistance to stabilize its exchange rates.

Part III: How IMF Determines Loan Amount for a Lending Country
When a country requests financial assistance, the IMF designs a program tailored to address the
specific challenges faced by the member country. These programs typically involve a combination
of policy measures, economic reforms, and financial support.

Conditionality:
IMF financial assistance often comes with conditions, known as "Conditionality/SAPs." Countries
are required to implement specific policy measures and economic reforms to address the root
causes of their balance of payments problems. The loan amount is tied to the successful
implementation of these conditions.

Part IV: Structural Adjustment Programs (SAPs) and Examples

SAPs Defined:
Structural Adjustment Programs (SAPs) are economic reform programs designed by the IMF to
address imbalances and structural weaknesses in a country's economy. SAPs often involve policy
adjustments, such as fiscal reforms, monetary measures, and structural changes in sectors like
trade, industry, and finance.

Examples of SAP Measures:

i. Austerity Measures: Reduction of government spending, including subsidies and public
services, to control fiscal deficits.
ii. Increasing Revenue: Imposition of direct/indirect taxes and tariffs in the energy sector.
iii. Currency Devaluation: Adjusting the exchange rate to improve trade balances.
iv. Trade Liberalization: Removing trade barriers to enhance competitiveness.
v. Privatization: Selling state-owned enterprises to the private sector to increase
efficiency.
vi. Financial Sector Reforms: Strengthening banking systems and financial institutions.
vii. Privatisation of failing/nonprofit making State Owned Entities (SOEs)

Pakistan and IMF

Pakistan has been a member of the IMF since 1950. Pakistan secured its first loan in 1958, and its 23rd
loan from the IMF in July, 2023.
The current loan program (23rd) is the, “Standby Agreement (SBA)” amounting to a total of Rs. $3
billion. Duration of the program is of 09-months. IMF never disburses the completed amount. Amount
is released in the form of “Tranches” consequent upon a successful “Review/Staff Level Meeting.” As
of now, IMF had approved the release of $700 million tranche under the current program the board's
decision brings the total disbursements under the Standby Arrangement (SBA) to about $1.9 billion.
 The World Trade Organization (WTO)
Creation and Membership:
WTO was created in 1995 succeeding General Agreement on Tariffs and Trade (GATT), which was
created in 1947/1948. Total members of WTO are 164.

Functions of the WTO: enhance of multilateral trading system

The World Trade Organization (WTO) performs a variety of functions aimed at facilitating
international trade, promoting economic growth, and ensuring a fair and predictable trading
environment among its member countries. Here are the key functions of the WTO:

i. Negotiation of Trade Agreements:

The WTO provides a forum for member countries to negotiate trade agreements. These
negotiations cover a broad range of issues, including the reduction of trade barriers, the
elimination of discriminatory practices, and the establishment of common rules for
international trade.
ii. Trade Liberalization:
The WTO promotes trade liberalization by advocating for the reduction or elimination of
barriers to trade. This includes negotiations on tariffs (taxes, customs, duties), non-tariff
barriers (sanctions, quotas), and measures that distort international trade.
iii. Dispute Settlement:
The WTO has a robust dispute settlement mechanism that allows member countries to
resolve trade disputes in a systematic and impartial manner. This process helps prevent trade
conflicts from escalating and provides a means for enforcing WTO rules.
iv. Monitoring and Surveillance:
The WTO monitors the trade policies and practices of its member countries through regular
reviews. These reviews, conducted through the Trade Policy Review Mechanism (TPRM),
provide a transparent and comprehensive assessment of each member's trade policies.
v. Technical Assistance and Capacity Building:
The WTO provides technical assistance and capacity-building programs to help developing
countries better understand and participate effectively in the multilateral trading system. This
support includes training, workshops, and other resources to enhance the capacity of
member countries to engage in international trade.
vi. Implementation of Agreements:
The WTO oversees the implementation of various agreements negotiated by its members,
including the General Agreement on Tariffs and Trade (GATT), the General Agreement on
Trade in Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS). Member countries are expected to bring their domestic policies and
regulations in line with these agreements.
vii. Development of Trade Rules:
The WTO contributes to the development of international trade rules that ensure fairness,
predictability, and transparency in trade relations. These rules cover areas such as trade in
goods, services, intellectual property, and investment.

The functions of the WTO collectively work towards the organization's overarching goal of
promoting open, fair, and rule-based international trade that benefits all member countries,
contributing to global economic development and stability.
 AOA: promotes agricultural trade TRIPS: protection of intellectual property rights. patents etc
TFA: ease processes related to trade, simplify them TRIMS: how to facilitate investors
TBT: based on technicalities

Pakistan and WTO:

Pakistan has been a part of the WTO since 1995. Ministry of Commerce is the focal point that engages
with the WTO.
Pakistan has implemented the following Agreements of the WTO:
1. Agreement on Agriculture
2. Trade Facilitation Agreement AOA, TBT, TRIMS, TRIPS, TFA
3. Technical Barriers to Trade
4. Agreement on Trade-related Intellectual Property Rights (TRIPs)
5. Agreement on Trade-related Investment Measures (TRIMs).

1.Great depression in 1929 for 10 years economic crisis Procedure

2. Bretton woods institutions are IMF and WB 1. Quota based lending: a country doesn`t get an
amount as per its wishes, the amount is determined
3. Structural capacity is institution ki salahat and human capacity as per the quota of that country which is bases on
4. debt servicing getting debt to pay debts the economic conditions
5. To reduce and adress balance of payment deficit Conditions associated with the loan: SAP structural
adjustment program.
6. subsidies: loan given by govt
The more the duration of loan, the conditions are
implemented till the duration of the loan.
1950 member of IMF, 1958 first loan and 24th
loan which is expected to be 7 billion dollars for 3 Crticism:
years portion of loan by IMF: Tranche 1. 1997 asia global financial crisis
SAP: 2008 GFC
1. broadening the tax bases. 2. SAPS are too rigid and harsh
2. SOEs management properly especially for lower and middle class
3. Downsizing of Govt. 3. unbalanced voting power: IMF executive
World bank: board take main decision and SAP and loans
purpose: to reduce poverty in countries through lending are approved by members in EB (on basis of
money. 2. It provides technical support and capacity quota and contribution to funds) they get more
development to the governments. 3. It provides loans for voting percentage. USA ha 16%. Voting power
infrastructural development. is unbalanced, it is not based on equality but on
equity and is unequal and undemocratic. doesn`t
IBRD: to provide loans and grants for infrastructure projects consider developing side of world.
IDA: same as IBRD 4. a counter argument for SAP's would be lack of
IFC: services provided to develop private sector in that funds, initially it was designed to cater 44 countries
country now 191 but the fund imf gets is almost the same
MIGA: to promote and enhance FDI (foreign direct investment)
which is weakening the imf's bargaining position.
gives guarantees to investors
Study: trade profile (top exported and top imported),
ICSID: arbitration and conciliation related to investment disputes
issues and policies

WTO: challenges
1. China violating TRIPS
China trade protectionist policies (time to time)
Impose higher tariffs
(Free trade principle! NOT)
Fair principle! NOT

2. Digitization of economy: World transform from conventional trading to Digital trading

(Trade of services). E-commerce, e-services
WTO needs to be at par with the growing digitalization of economy. Capacity development.

3. development divide: global north and global south. For mandating and sustaining the “Multilateral trading System"