State two functions of the International Monetary Fund (IMF) (paragraph [2]).

Define the term human capital indicated in bold in the text (paragraph [5]).

Using a poverty cycle diagram, explain how the government of Pakistan could intervene to “break out of the poverty cycle” (paragraph [3]).

Using an externalities diagram, explain how “greater access to education” for girls in Pakistan could reduce market failure (paragraph [5]).

Using information from the text/data and your knowledge of economics, evaluate the potential impact of the IMF and the World Bank on economic development in Pakistan.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

Example of poverty cycle (any cycle, including investment and starting and ending with an indicator of poverty, is acceptable).

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The vertical axis may be price, but could be costs or benefits. The horizontal axis is quantity. P and Q is sufficient. A title is not necessary.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond Level 2 if the answer does not contain reference to the information provided.

Command term
“Evaluate” requires candidates to make an appraisal by weighing up the strengths and limitations. Opinions and conclusions should be presented clearly and supported with appropriate evidence and sound argument.

Responses may include:

• Functions of IMF, World Bank.
• Definition of economic development.
• The difference between the IMF and the World Bank.

May promote/achieve economic development because:

• IMF loans provide help with balance of payments deficit and external debt obligations (paragraph [1]), allows government revenue to be used for improving quality of life through expenditure on merit goods.
• The IMF may learn from previous agreements and provide the monitoring/support needed for successful implementation of realistic conditions to reduce the burden of debt payments (paragraph [4]).
• Other potential lenders may be persuaded or given the confidence to provide finance to help with economic development projects (paragraph [3]).
• The World Bank’s education projects directly influence education and female enrolment rates which promote gender equality, employment possibilities, increasing incomes and access to basic needs (paragraph [5]).
• Providing key infrastructure such as hydroelectric dams allows access to electricity and provides basic needs and infrastructure for business development (paragraph [6]).
• Loans help build capacity and attract FDI to facilitate economic growth needed to break out of the poverty cycle (paragraph [3]), may provide employment opportunities and increased tax revenue.
• IMF suggestions/conditions such as improved tax collection and access to credit can help support economic development (paragraph [2]).

Above points should link to how these impacts will reduce poverty, increase living standards, reduce income inequalities and/or increase employment opportunities, improve health and education indicators, ie achieve economic development.

However, may not promote economic development because:

• Loan conditions (paragraph [2]) may limit the government’s ability to achieve its development objectives, particularly the improvement in human capital (paragraph [5]).
• Development spending might be decreased due to contractionary fiscal policy.
• Balance of payments issue has not been dealt with in the past (paragraph [4]).
• World Bank infrastructure project – may lack sustainability (paragraph [6]).
• The lending conditions may reduce economic growth, increase unemployment and hamper economic development.
• While FDI may lead to increased employment and economic growth, attracting FDI may require offering concessions (tax, regulatory, etc) which may limit its development impact.
• More loans and extending loans (paragraph [3]) may not be dealing with other fundamental issues of managing the loans, such as servicing costs (paragraph [4]).
• Environmental issues may be overlooked, threatening sustainability (paragraph [6]).

Any reasonable evaluation.

Many candidates seem to confuse the IMF and the World Bank. The provision of development aid was often listed as one of the functions of the IMF.

Although this term is rarely tested as a definition, candidates showed a good understanding of the term. The answers which were confined to level 1 were often those which saw the term as synonymous to 'labour'.

The poverty cycle is often tested in paper two questions, so most candidates scored 2 marks on the diagram. Fewer could point to an actual government policy. Most confined themselves to broad statements and few candidates scored more than 3 marks. In many cases, candidates explained how the IMF loan might help the citizens of Pakistan break out of the poverty cycle but unfortunately did not link the access to the loan to any form of government intervention and hence could not achieve full marks.

A significant number of candidates skipped this question - more than any other question on this paper. Those who attempted it, however, mostly did well. Only a handful who drew a diagram with MSC lower than MPC (rather than MSB higher than MPB) did not get marks for the diagram. Most candidates did not label the demand and supply curves. While MPB and MPC were sufficient labels for this paper, it is advisable to add the labels demand/D and supply/S as well.

Unfortunately, there were not many good answers to this question. Candidates did not seem familiar with the work of the World Bank and the IMF. Those who had memorised the multilateral institutions' functions and aims, struggled to explain/analyse how they might affect development. Many answers were limited to the benefits of loans in terms of financing education and healthcare and tended to be rather one-sided, with relatively little analysis of why the actions of the IMF and World Bank might not promote economic development. The text was used, but often rather superficially.