Role of international donors in policy formulation

Introduction

Pakistan has entered over twenty IMF programmes since 1958. Each programme includes a Letter of Intent and a Memorandum of Economic and Financial Policies (MEFP), in which the government commits to specific policies, targets and structural reforms. These commitments shape budgets, taxes, energy prices and institutional reforms.

The MEFP 2013/14–2015/16

In September 2013 the IMF approved a three-year Extended Fund Facility of about $6.6 billion. The MEFP committed Pakistan to:

• Fiscal consolidation: reducing the budget deficit through higher revenue and controlled spending.
• Tax reform: broadening the tax base, withdrawing tax exemptions granted through statutory regulatory orders (SROs) and improving FBR administration.
• Energy sector reform: reducing circular debt, raising tariffs towards cost recovery, cutting subsidies and improving distribution companies' collection.
• Monetary policy and SBP autonomy: controlling inflation and rebuilding foreign exchange reserves.
• Restructuring or privatizing loss-making public sector enterprises such as PIA, Pakistan Steel Mills and power companies.
• Improving the business climate and social protection, including expanding BISP.
• The programme was completed in 2016, among the few Pakistan IMF programmes completed in full.

Later programmes

• 2019: a $6 billion EFF, interrupted by COVID-19 and political changes.
• 2023: a $3 billion Stand-By Arrangement to avoid default.
• 2024: a $7 billion, 37-month EFF focused on raising the tax-to-GDP ratio, energy reform, SOE reform and social protection; a Resilience and Sustainability Facility for climate followed in 2025.

Other donors

• World Bank: development policy loans and projects; its 2026–35 Country Partnership Framework commits about $20 billion for child stunting, education, clean energy, climate resilience, private investment and revenue.
• Asian Development Bank: energy, transport, social protection and governance reforms.
• Bilateral partners: China (CPEC), Saudi Arabia, the UAE, Japan, the UK and the US.

Effects on policy

• Positive: macroeconomic stability, reserves, institutional reforms such as SBP autonomy and the PFM Act.
• Negative: policies may be seen as externally imposed, lacking national ownership.
• Short-term austerity can cut development spending and hurt the poor through higher prices.
• Reforms are often reversed after programmes end, leading to repeated crises.

Way forward

• National ownership of reforms through parliamentary debate and cross-party agreement.
• Home-grown reform agendas that donors support rather than dictate.
• Structural changes to raise exports and taxes so that Pakistan needs fewer bailouts.

Conclusion

Donors play a major role in Pakistan's policy-making because of recurring financial crises. Ending this dependence requires sustained domestic reform that continues after each programme ends.