Structural Adjustment and Economic Growth in Pakistan: A Smooth Transitions Analysis

Abstract

Policy-based lending, as we have come to know it, is a well established practice in Pakistan. This country was among the first to accept such lending, having received its first World Bank Sectoral Adjustment Loan of $50 million in 1980. It subsequently accepted its first World Bank Structural Adjustment Loan of $140 in 1982 and its first IMF Structural Adjustment Facility loan of $515 million in 1988. These lending agencies have advanced more than $4 billion in adjustment lending to Pakistan since the early 1980s (Iqbal, 1993; and Zaman, 1995). This is in addition to roughly the same amount of funds provided by the IMF through its Standby and Extended Fund Facility arrangements (Zaman, 1995). Based on the number of adjustment loans it has received, Pakistan has been classified by the World Bank as an ‘intensive adjuster’ (World Bank, 1992). In return for these loans Pakistan has committed itself to a fairly common package of reforms aimed at stabilizing and structurally adjusting its economy. These reforms include reducing the overall budget deficit, curtailing the rate of inflation, reducing the balance of payments deficit, decreasing the level of private external debt service ratio, increasing gross official foreign exchange reserves, containing the growth of domestic credit, liberalizing foreign trade, reforming financial markets, and deregulating prices and investment in the agricultural and industrial sectors. The main aims of these reforms were to contain inflation and restore growth (Zaidi, 1994).