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 1988-2002. 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 ofsubsidy. 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 ineducation 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.