Impact of IMF Funding on Pakistans economy

continue of IMF support on Pakistans economyIntroductionThe keep by Inter home(a) Mo netary Fund (IMF) to developing countries has al ship government agency raised a flip over on its ordained and controvert doctors on the economy of the creditor country. Pakistan has an whole-inclusive history of mount from IMF starting from 1958 to 2004 in various time spans and forthwith the authorized reason from 2008. This psychoanalyze analyzes the wedge of IMF support on Pakistan. Although in that respect has been criticism regarding both themes of policies and the financing impact but the focus of this investigate is to study the impacts and non to discuss or criticize the policies of IMF.The IMF works to cherish global ripening and scotch stableness. It provides polity advice and financing to members in stinting difficulties and also works with developing nations to help them achieve macro scotch stability and reduce poverty. It is working to foster global m acetary co operation, secure pecuniary stability, facilitate international trade, promote high physical exercise and sustainable economic ontogenesis, and reduce poverty around the world.Although monetary fund provides monetary supporter to the developing countries but its role in economic prosperity has been highly criticized from the last few years due to its strict policies and restrictions imposed on the borrower country. Under current agreement, IMF imposes 11 main conditions on Pakistan which includes introduction of the rudimentary Excise Duty on service and agricultural sector, reduction in the expenditures on Public Sector Development Program, devaluation of rupee, freezing of non-development expenditure low the defense budget, non-provision of supplementary grants to government activity departments, ending subsidy on throttle and electricity, reduction in non-development expenditure of civil departments and federal ministries, add in markup array of banks and on inter-ban k transactions, uniformity in the inter-bank and open market horse exchange rate and stoppage of government financial intervention in stock markets.The main aim of IMF behind imposition of policies is to increase the revenues of the borrower country. nonwithstanding some studies reveal that it affects the economy both directly and indirectly. Directly it imposes impact in the sense of control of certain variables on which it put restrictions and indirectly with regard to the kind of these variables with other macroeconomic driving variables that drives the economic growth.The con alignr here is non the IMF funding but the policy impositions that could impact the economic growth. IMF provides property for the three major areas, to reduce deficit of fiscal enumerate and current business relationship and to increase the revenues. The question here arises that whether the increase in revenuees, elimination of subsidies and development projects exclusivelyow for help boost th e economy or causes the historical gross domestic product to fall from the expected evaluate with change magnitude inflation.An extensive research has been do to address the issue of IMF policies and impact on economy of the borrower country but there are conflicting ensues derived by different police detectives due to particular conditions related to that country, the researches that tried to study all countries at a lower place IMF program also reveals contradicting bequeaths. This study focuses specifically on Pakistan so that particular cause could be revealed that IMF funding is pouring on Pakistans economy. difficulty stirmentThe problem statement of research is shock of IMF funding on Pakistans economy. Major variables that are used in this study include IMF funds and macro economic variables that are the indicators of an economy i.e. real GDP, employment rate, current consider balance, balance of payments and FDI.ObjectivesThe objectives of our study areTo study how IMF funding is set its effect on economy of Pakistan.To reveal that whether there is any substantial relationship between IMF funding and economic growth and if there is a relationship then whether it is positive or negative.To draw conclusion and aim recommendations by means of psychoanalysis that whether Pakistan should borrow from IMF or seek other manners of borrowingSignifi preemptceAlthough a look of studies rich person addresses the stated issue but these researches mostly carried out aggregate affect taking into account all the countries under(a) IMF program. The look that we are going to conduct go out try to find out impact of IMF funding on economic growth in particular scenario of Pakistan.DelimitationOur scope of study go out be limited to the impacts on Pakistan economy. More over the variable that we will use for analysis of economic growth will be and major macroeconomic variables which are majorly contributing towards the growth factor. In our study we are not considering the political instability and inconsistency in the prevalent policies and other social environmental issues that could impact economic growth side by side.Chapter 2Review of Related LiteratureThis chapter includes the work done in the aforesaid(prenominal) area by other researchers. It put a glance on studies of some of the researchers along with their proposed conclusionsLiterature reviewIMF funding has been one of the most debated issues from the last few years in legal injury of its policies, restrictions and its impact on the economy of countries under IMF programs. A issue forth of studies bring forth been done in this regard. However the egresss of these studies are contradicting devising this issue alleviate debatable. Recent studies have produced mixed and sometimes puzzling results regarding the impact of IMF programs on a nations balance of payments, current account balance, foreign direct investment, real GDP, per capita income and long-run economic growth.Martin Feldstein (1998) argues that the IMF required excessively large reductions in government deficits and restrictions on monetary policy. These restrictions resulted in substantial increases in tax rates, raise rates and increase in current account deficit. Feldstein argues that Asian economies have experienced a recession that worsened their economic problems as a result of these policy changes. Feldstein argues that many of the mandated reforms involve unjustified interference with national autonomy and have little or no relationship to the terminal of resolving the payment problem. He notes that it would have been better to allow to a greater extent time for negotiations between borrowers and lenders before providing IMF loans to a country experiencing payment problems.Ho at that place is no world-shaking Impact on the current account deficit by change magnitude regime spending through IMF living.H5 in that location is fundamental Impact on the curr ent account deficit by increasing administration Expenditure through IMF accompaniment.Doug Bandow (1999) argues that the existence of IMF bailouts creates a moralistic hazard problem that encourages countries to not solve their fundamental problems. He suggests that all nations would benefit if healthy economies quarantined sick economies instead of providing economic assist. Bandow argues that IMF assistance programs increase risk for healthy economies and do not provide long-run benefits for troubled economies. He notes that most IMF borrowers have received aid for a decade or more.Jensen (2004) suggests that international capital markets perceive IMF intervention as a negative development. Regardless of factors driving their decisions, Jensens research provides strong demonstrate that developing countries pay a serious price when they take improvement of IMF assistance. His research strongly reveals a negative relationship between IMF funding and foreign direct investment in the country. According to him investors dont perceive this funding in a positive way that why reducing net investment level in the country and as a result hindering economic growth. For impact of IMF on FDI next possibleness is genuineHo thither is no important Impact on the FDI by increasing brass Expenditure through IMF Funding.H1 there is important Impact on the FDI by increasing presidency Expenditure through IMF Funding.On the other hand there are a form of researchers handle Dicks Mireaux (2000), who have found strongly positive economic growth effectuate of IMF funding. These researches found that there is appositive impact of IMF funding on the economy. temporary hookup there are also studies which concluded that are no monumental effects of IMF on the economy of a country under IMF agreement like, Hardoy(2003) and Hutchison (2004), who argue that IMF funding does not pour any world-shattering impact on the economy of the borrower country. Mireaux argue tha t economy grows due to the increased tax revenues. Following hypothesis has been developed between tax revenue and IMF funding.Ho in that respect is no significant Impact on the Tax gross by increasing authorities Expenditure through IMF Funding.H3 There is significant Impact on the Tax receipts by increasing Government Expenditure through IMF Funding.Nunnenkamp(1999) in his article discussed that IMF is under serious struggle as critics blame that IMF lending lead to financial crisis and suggests to stop IMF funding also the researcher discussed the consequences of ending the lending ODriscoll (1997) in his article has conducted the descriptive research about the IMF policies towards developing countries by keeping the focus on USA economy. The Policy making of IMF for the developing countries are without any indorse of historical decisions taken by the developing countries in past. Thus the financial crises and current account deficit crises is mainly attributed to such polic y making. The researcher has give example of Asia in which case the above discussion is particularly true which roots in 1995. The IMFs handling of the Mexico crisis firmly established moral hazard in international lending and sowed the seeds for the Asian crisis. Thus far, IMF policy in Asia largely repeats the policy mistakes in Mexico.Gina (2007) indicates in his article that the reforms enacted by Congress in USA are an important first measuring toward reforming the IMF. Even more important than the reforms, however, was the congressional debate over IMF funding. That debate focused attention on the process and Substance of IMF policymaking and even questioned the pick up for that organization in the post-Bretton Woods world.Przeworski and Vreeland (2000) Using a bivariate, dynamic interpreting of the Heckman selection model, we venture the effect of lodge in International fiscal Fund IMF programs on economic growth. We find evidence that governments enter into agreements with the IMF under the pressures of a foreign reserves crisis but they also bring in the Fund to shield themselves from the political costs of adjustment policies. Program participation lowers growth rates for as long as countries remain under a program. Once countries leave the program, they grow faster than if they had remained, but not faster than they would have without participation. So for the relation between IMF and GDP pastime hypothesis are developedHo There is no significant Impact on the GDP by increasing Government Expenditure through IMF Funding.H1 There is significant Impact on the GDP by increasing Government Expenditure through IMF Funding.The guesss of Barroa Lee (2005) shows that a high IMF loan-participation rate reduces economic growth. IMF lending does not have significant effects on investment, inflation, employment, government consumption, and international openness. However, IMF loan participation has small negative effects on democracy and the rule of law.Ho There is no significant Impact on the conflict by increasing Government Expenditure through IMF Funding.H2 There is significant Impact on the exercising by increasing Government Expenditure through IMF Funding.Chapter 3Research MethodologyThis chapter includes the theoretical model, data collection technique and methodology procession used for the analysisTheoretical modelstintingGrowth hearty GDPIMF FundingEmploymentFDI R receiptsCurrent Account Balanceselective information collectionSecondary source for the data collection has been used in this research. For this purpose most of the data will be collected from the Economic Survey of Pakistan, international monetary fund web site and state bank of Pakistan website.The dependant variables that have been used to analyze the economic growth include balance of payment, current account balance, real GDP, rate of employment and foreign direct investment. These are the major variables that are the determinants of economic growth of a country. The independent variable is the amount of funding by IMF. entropy analysisRegression analysis is used for analyzing the impact of IMF funding on Pakistans economy. information is analyzed using SPSS. Data for the IMF funding in Pakistan is in detail below eldIMF living1973-19745271974-7519901975-7619871976-7724971977-782321978-7934061979-806441980-8137891981-8260791982-8372661983-8428122000-01354002001-0265460Chapter 4Data showing and FindingsThis chapter includes the data which has been used for the analysis, analyzed results and the findings that follow through the analysisData presentation and findingsFollowing is the detailed data used for the analysis and the findings of the statistical reversal analysis. The data is presented separately for each variable used as the valuate of economic growth of the country.IMF funding and GDPData Analysis for initiative HypothesisHo There is no significant Impact on the GDP by increasing Government Expenditure through IM F Funding.H1 There is significant Impact on the GDP by increasing Government Expenditure through IMF Funding.IMF FUNDINGGDP1974527384391974-751990399301975-761987412291976-772497424011977-78232456791978-793406482041979-80644517361980-813789550481981-826079590121982-837266629751983-842812659682000-01354001805002001-0265460212200FindingsTo test the hypothesis, linear regression analysis used. The results of regression of one(a) independent covariant (IMF Funding) against GDP (dependent variable) can be seen in the following output. good example Summary rideRR cheering familiarized R SquareStd. Error of the musical theme1.971.943.93714025.2195a Predictors (Constant), IMF FUNDINGanalysis of varianceModelSum of Squaresdf stiff SquareFSig.1Regression35481741865.974135481741865.974180.379.000Residual2163774597.71811196706781.611Total37645516463.69212a Predictors (Constant), IMF FUNDINGb babelike Variable GDPCoefficientsUn quantityized Coefficients streamerise CoefficientstSig.ModelBS td. Error important1(Constant)43492.6014451.5639.770.000IMF2.861.213.97113.431.000a unfree Variable GDPInterpretation of analysisThe analysis of variance table shows that the F note value of 180.379 is significant at the .000 levels. grade of freedom column in the table, the first number represent the number of self-reliant Variable (1) the turn number (13) is the data collected for resume number of years (N), electronegative the number of supreme Variable (K) deduction 1 or 11=(N-K-1) or (13-1-1)= 12. The F statistics produce (F= 180.379) is significant at the .000 levels. Which shows that Model severity is significant at 0.000 level of consequence.What the result ungenerous is that 94.3 part of division (R square) in increase in GDP has been significantly explained by increasing Government Expenditure by way of IMF Funding (Independent variable) with meter actus reus of estimate of 14025.2195. Standard error of estimate shows amount travel remote the regression line or shows standard deviation from plastered. There is .000 partageage or less chance of this is not holding true. There is coefficient of correlational statistics of 0.971 (denoted as r=0.971) between IMF Funding (Independent variable) and GDP (dependent variable) with level of implication 0.000. so there is positive relationship between the two variables and luck of this is not true is energy percent or less. That is 100 percent of time we would expect that this correlation to exist. There is a beta value of 0.971, which shows that 97.1 percent chance of making grammatical case II error if shadowy hypothesis is accepted when it is false. At the same time Un standardized coefficient B= 2.861 indicates that the value of GDP increase by 2.861 whole for a one unit increase in Government Expenditure by IMF Funding. What the result baseborn is that t value 13.431 significant at 0.000. Thus hypothesis 1 is substantiated.IMF funding and employment rateData Analysis for Seco nd HypothesisHo There is no significant Impact on the Employment by increasing Government Expenditure through IMF Funding.H2 There is significant Impact on the Employment by increasing Government Expenditure through IMF Funding.YEARSIMF FUNDINGEMPLOYMENT1973-197452719.761974-75199020.31975-76198721.081976-77249721.891977-7823222.731978-79340623.621979-8064424.151980-81378924.71981-82607925.271982-83726625.851983-84281226.42000-013540037.512001-026546038.29FindingsTo test the hypothesis, linear regression analysis used. The results of regression of adept independent Variable (IMF Funding) against Employment (dependent variable) can be seen in the following output.Model SummaryModelRR SquareAdjusted R SquareStd. Error of the Estimate1.912.832.8172.5175a Predictors (Constant), IMF FundingANOVAModelSum of SquaresdfMean SquareFSig.1Regression345.3181345.31854.485.000Residual69.717116.338Total415.03512a Predictors (Constant), IMF Fundingb Dependent Variable EMPLOYMENTCoefficientsUnstanda rdized CoefficientsStandardized CoefficientstSig.ModelBStd. Error important1(Constant)22.636.79928.328.000IMF2.823E-04.000.9127.381.000a Dependent Variable EMPLOYMENTInterpretation of analysisThe ANOVA table shows that the F value of 54.485 is significant at the .000 levels. Degree of license column in the table, the first number represent the number of Independent Variable (1) the second number (13) is the data collected for total number of years (N), minus the number of Independent Variable (K) minus 1 or 11=(N-K-1) or (13-1-1)= 12. The F statistics produce (F= 54.485) is significant at the .000 levels. Which shows that Model validity is significant at 0.000 level of significance.What the result mean is that 83.2 percent of variance (R square) in increase in Employment has been significantly explained by increasing Government Expenditure by way of IMF Funding (Independent variable) with standard error of estimate of 2.5175. Standard error of estimate shows amount falls outside th e regression line or shows standard deviation from mean. There is .000 percent or less chance of this is not holding true. There is correlation of 0.912 (denoted as r=0.912) between IMF Funding (Independent variable) and Employment (dependent variable) with level of significance 0.000. So there is positive relationship between the two variables and probability of this is not true is zero percent or less. That is 100 percent of time we would expect that this correlation to exist. There is a beta value of 0.912, which shows that 91.2 percent chance of making TYPE II error if void hypothesis is accepted when it is false. At the same time Un standardized coefficient B= 0.00283 indicates that the value of Employment increase by 0.00283 unit for a one unit increase in Government Expenditure by IMF Funding.What the result mean is that t value 7.381 significant at 0.000. Thus hypothesis 2 is substantiated.IMF funding and tax revenueData Analysis for tercet HypothesisHo There is no signifi cant Impact on the Tax Revenue by increasing Government Expenditure through IMF Funding.H3 There is significant Impact on the Tax Revenue by increasing Government Expenditure through IMF Funding.YEARSIMF FUNDING revenue REVENUE1973-19745279,444.001974-75199011,428.701975-76198713,914.801976-77249716,112.501977-7823220,041.101978-79340623,475.701979-8064430,720.401980-81378936,509.301981-82607940,367.601982-83726646,475.001983-84281255,360.002000-0135400444,800.002001-0265460486,000.00Findings To test the hypothesis, linear regression analysis used. The results of regression of unmatchable independent Variable (IMF Funding) against Tax Revenue (dependent variable) can be seen in the following output.Model SummaryModelRR SquareAdjusted R SquareStd. Error of the Estimate1.958.917.91049565.7061a Predictors (Constant), IMF FUNDINGANOVAModelSum of SquaresdfMean SquareFSig.1Regression300517013184.6651300517013184.665122.323.000Residual27024351475.824112456759225.075Total327541364660.48912 a Predictors (Constant), IMFb Dependent Variable TAX REVENUECoefficientsUnstandardized CoefficientsStandardized CoefficientstSig.ModelBStd. ErrorBeta1(Constant)10370.08615732.008.659.523IMF8.326.753.95811.060.000a Dependent Variable TAX REVENUEInterpretation of analysisThe ANOVA table shows that the F value of 122.323 is significant at the .000 levels. Degree of Freedom column in the table, the first number represent the number of Independent Variable (1) the second number (13) is the data collected for total number of years (N), minus the number of Independent Variable (K) minus 1 or 11=(N-K-1) or (13-1-1)= 12. The F statistics produce (F= 122.323) is significant at the .000 levels. Which shows that Model validity is significant at 0.000 level of significance.What the result mean is that 91.7 percent of variance (R square) in increase in Tax Revenue has been significantly explained by increasing Government Expenditure by way of IMF Funding (Independent variable) with standard error of estimate of 49565.7061. Standard error of estimate shows amount falls outside the regression line or shows standard deviation from mean. There is .000 percent or less chance of this is not holding true. There is correlation of 0.958 (denoted as r=0.958) between IMF Funding (Independent variable) and Tax Revenue (dependent variable) with level of significance 0.000. So there is positive relationship between the two variables and probability of this is not true is zero percent or less. That is 100 percent of time we would expect that this correlation to exist. There is a beta value of .958, which shows that 95.8 percent chance of making TYPE II error if null hypothesis is accepted when it is false. At the same time Un standardized coefficient B= 8.362 indicates that the value of Tax Revenue increase by 8.326 unit for a one unit increase in Government Expenditure by IMF Funding.What the result mean is that t value 11.060 significant at 0.000. Thus hypothesis 3 is substantiated.IMF funding and FDIHo There is no significant Impact on the FDI by increasing Government Expenditure through IMF Funding.H1 There is significant Impact on the FDI by increasing Government Expenditure through IMF Funding.YEARSIMF FUNDINGFDI1973-1974527-1891974-7519904471975-7619876751976-7724973211977-7823210651978-79340610801979-806448401980-81378912251981-82607934301982-8372661473.51983-84281216802000-0135400199952001-026546030051.4Findings To test the hypothesis, linear regression analysis used. The results of regression of One independent Variable (IMF Funding) against FDI (dependent variable) can be seen in the following output.Model SummaryModelRR SquareAdjusted R SquareStd. Error of the Estimate1.991.982.9811290.1947a Predictors (Constant), IMFANOVAModelSum of SquaresdfMean SquareFSig.1Regression1010046942.20011010046942.200606.780.000Residual18310625.532111664602.321Total1028357567.73212a Predictors (Constant), IMFb Dependent Variable FDICoefficientsUnstandardized CoefficientsSta ndardized CoefficientstSig.ModelBStd. ErrorBeta1(Constant)-128.350409.504-.313.760IMF.483.020.99124.633.000a Dependent Variable FDIInterpretation of analysisThe ANOVA table shows that the F value of 606.780 is significant at the .000 levels. Degree of Freedom column in the table, the first number represent the number of Independent Variable (1) the second number (13) is the data collected for total number of years (N), minus the number of Independent Variable (K) minus 1 or 11=(N-K-1) or (13-1-1)= 12. The F statistics produce (F= 606.780) is significant at the .000 levels. Which shows that Model validity is significant at 0.000 level of significance.What the result mean is that 98.2 percent of variance (R square) in increase in FDI has been significantly explained by increasing Government Expenditure by way of IMF Funding (Independent variable) with standard error of estimate of 1290.1947. Standard error of estimate shows amount falls outside the regression line or shows standard de viation from mean. There is .000 percent or less chance of this is not holding true. There is correlation of 0.991 (denoted as r=0.991) between IMF Funding (Independent variable) and FDI (dependent variable) with level of significance 0.000. So there is positive relationship between the two variables and probability of this is not true is zero percent or less. That is 100 percent of time we would expect that this correlation to exist. There is a beta value of 0.991, which shows that 99.1 percent chance of making TYPE II error if null hypothesis is accepted when it is false. At the same time Un standardized coefficient B= .483 indicates that the value of FDI increase by .483 unit for a one unit increase in Government Expenditure by IMF Funding.What the result mean is that t value 24.633 significant at 0.000. Thus hypothesis 4 is substantiated.IMF funding and current account deficitData Analysis for 5th HypothesisHo There is no significant Impact on the FDI by increasing Government E xpenditure through IMF Funding.H5 There is significant Impact on the FDI by increasing Government Expenditure through IMF Funding.YEARSIMF FUNDINGCURRENT ACCOUNT DEFICIT1973-197452733181974-751990106391975-76198792121976-772497117181977-78232148351978-79