Structural Adjustment of Pakistan

Topics: World Bank, Structural adjustment, Macroeconomics Pages: 7 (2230 words) Published: September 23, 2013




Ms. Ayesha


Syeda Sasha Sohail
BSc. Economics
Semester VII-A


23th September, 2013


Structural Adjustment Programs

Structural Adjustment Programmes (SAPs) are economic policies for developing countries that have been promoted by the World Bank and International Monetary Fund (IMF) since the early 1980s. Structural Adjustment Policies are economic policies which countries must follow in order to qualify for new World Bank and International Monetary Fund (IMF) lower interest rates loans and help them make debt repayments on the older debts owed to commercial banks, governments and the World Bank.

Measures Imposed Under SAPs

Although SAPs differ somewhat from country to country, they typically include: A shift from growing diverse food crops for domestic consumption to specializing in the production of cash crops or other commodities (like cotton, coffee, copper, tin etc.) for export; Abolishing food and agricultural subsidies to reduce government expenditures; Deep cuts to social programmes usually in the areas of health, education and housing and massive layoffs in the civil service; Currency devaluation measures which increase import costs while reducing the value of domestically produced goods; Liberalization of trade and investment and high interest rates to attract foreign investment; Privatization of government-held enterprises.

Structural Adjustment Agreements in Pakistan

Structural adjustment programs in Pakistan date back to 1978-79 when the military regime first called in the IMF for assistance. Pakistan and the IMF signed a Trust Fund loan in 1979-80. The next year a three year Extended Fund Facility was signed from 1980-81 to 1982-83. Another loan was offered in 1983-84, but this was turned down by the government which had adequate foreign exchange reserves at this point. The more concerted period of adjustment begun in 1987-88, when a surge in imports, coupled with a sharp reduction in worker's remittances served to drive the current account deficit up to 4.3 percent of the GDP. The budget deficit in the same year shot to a record level of 8.6 percent of the GDP. The government was not equipped to deal with these persistent macroeconomic imbalances and began to negotiate with the IMF and the World Bank for the disbursement of a series of loans under the Structural Adjustment Facility. Under the agreement of December 1988, Pakistan received $147 million in 1988-89 and an additional amount of $216 million was disbursed in 1989-90. This first set of loans carried a comprehensive package of conditions of which the most important was that the magnitude of the budget deficit would be brought down to 4.8 percent of the GDP by the end of the three year loan period, i.e. by 1990-91. The government subsequently re-negotiated these terms to delay adjustment by an extra year. The government was also asked to ensure that the revenue-GDP ratio would be raised to at least 20 percent of the GDP by 1990-91 through a series of measures which included the extension of general sales tax to cover at least 30 percent of domestic industrial production, and reforms in the tax collection and assessment systems. The expenditure-GDP ratio was to be contained to less than 25 percent of the GDP, largely through reductions in cash and economic subsidies. The conditions also included ensuring controls on inflation and credit expansion and instituting a series of financial and exchange rate reforms. The government responded to these conditions immediately and did institute a series of reforms, but they remained largely unsuccessful in achieving the targets set by the donor agencies. In August 1993, the interim government set about negotiating a stand-by agreement with the Bank and the Fund, and announced a set of economic reforms that...
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