Economics of Austerity and Its Social Cost: A Critical Assessment of IMF Policies in Pakistan from 1988-2002

Abstract

The paper attempts to analyze the impact of the economics of austerity in the form of structural adjustment programmes singed by government with IMF during 1988with IMF during -2002 To assess the impact of SAP on the vital macroeconomic indicators, the paper has adopted qualitative and quantitative research methodology while collecting data from different sources, including State Bank of Pakistan. This paper assesses the social impact of IMF conditionalities on health, education in addition to social consequences of privatization and withdrawal of subsidy. It has been deduced from the data that there has been major reduction on the expenditure on health and education as a result of cuts on healthcare and education as certain portions of the budget such as the defense, debt servicing and government salaries are fixed and the cut in the budget translates into cut in social sector expenditure which eventually impacted on health, education and other relevant sectors of the economy. This had have negative implications for the quality of services provided in education, curative health care and provision of medicines, largely due to protecting recurring budgets in the face of cutbacks. Education is an important sector of economy since it is a key component of the strategy for sustainable development and the best way to build a modern and coherent community. Cuts in educational expenditures had worst consequences for both the quality and quantity of education provided to students. Governments in the past had reacted by reducing education budget which resulted in decline in real education expenditure per student. Hence cut in education expenditure affects both the quality and quantity of education provided to the population by any government and can be linked directly to structural adjustment programs. The other area that produced negative social consequences during adjustment period is the privatization. Though IMF saw privatization as panacea to the economic woes of Pakistan, it failed to produce the desired results. From 1991 to 2006 the GOP privatized more than 160 public units at gross price of Rs. 395 billion and about 0.6 million workers were rendered jobless as a result of neo-liberal IMF (SAP) policies.

Economic crises and the reform programs

“…The country faced political instability along with corruption, financial confusion, low government revenue and ineffective use of resources. Similar to other developing countries, it suffered from a deficit balance of payment and high dependency on external borrowing (Hakro & Ahmed, 2006;Isran et al, 2013;Isran & Isran, 2014). When Pakistan announced its bankruptcy in 2000, it turned to the IMF for support.…”

“…The government significantly increased the taxation rate within 3 years only, however, it did not widen the tax base. On the other side, the government decreased national expenditure (Isran et al, 2013;Isran & Isran, 2014). Furthermore, excise duties on hotels, travel, advertisement and telecommunication were imposed.…”

“…The IMF program was identified to lack safety net for workers and vulnerable communities. Expenditure on health and education declined, and privatization caused thousands to lose their jobs (Isran & Isran, 2014). Harko & Ahmed (2006), criticize the timing of adjustment implementation; the government did not adopt a serious sequence timeline for the program completion.…”