The recommendations also call for broad-based political consultation and commitments to ensure that the new package get desired results of bringing in structural reforms in the economy, which Pakistan failed to make despite its repeated promises.

The IMF staff asked its board to provide a medium-term soft programme called the Enhanced Financing Facility (EFF) instead of Standby Arrangement (SBA), which is short-term and expansive. “If reforms are back loaded, it would be appropriate to phase access to Fund financing accordingly,” an internal IMF document said.

The IMF report said that the ambitious reforms required preparation and ownership. The typical time horizon of SBA-supported programmes should not constrain this process, it said.

If there is ownership for bold reforms, the programme period should be long enough to see it through, it added. “With an extensive reforms agenda, programme support through the EFF (rather than the SBA) could be considered.” The IMF’s ex-post evaluation, under the $11.3 billion Stand-by Arrangement (SBA) of 2008, states that the history of Fund support to Pakistan demonstrates high risk slippages. The Fund board should be well informed of these risks in making possible decision on financial support for any future arrangement, it said. The IMF draft report states that a programme and its conditions should be focused to address the key weaknesses that hamper financial sustainability. It said that the new conditions needed to strike a balance, including critical reforms. If reforms are back loaded, it would be appropriate to phase access to Fund financing accordingly, it added. “Active political support at the highest level is essential to implement sensitive reforms and in this context, it would be worthwhile to consider the president to co-sign the Letter of Intent (LoI)”.

The report is seen by many Pakistani economists as IMF’s no-confidence on Finance Minister Abdul Hafeez Shaikh and Governor State Bank of Pakistan Yasin Anwar who signed the previous LoI loan agreement document, but failed to deliver on their promises. But official circles say that it would not make any difference as in 1988 former premier Benazir Bhutto signed the IMF loan agreement being chief executive of the country.

A senior official said that the IMF document showed lack of knowledge about Pakistani realities where finance minister could not sign any agreement without taking the political leadership into confidence.

During the tenure of PPP-led government, President Asif Ali Zardari took all the important decisions, the official said adding that the last unsuccessful SBA was approved by the federal cabinet. The IMF report said that while the need for further reforms was beyond doubt, the direction could be reevaluated, especially in the light of fiscal decentralisation. Emphasis could be on tax administration (complemented, as appropriate, by the use of anti-money laundering framework) given low compliance rates.

Policy reform, according to the report, could be diversified, including direct taxes in addition to further reforms in the GST — which remains indispensable.

The planned Value Added Tax (VAT) faltered in the absence of a general political consensus. A new programme would also have to address the emerging critical challenges of managing fiscal decentralisation, the report said.

The collaboration with other donors such as the World Bank and the Asian Development Bank (ADB) would continue as the complexity of energy sector issues and the governance-related problems illustrate a clear-cut division of labour among development partners, it added.

The IMF staff should, therefore, continues to rely on the World Bank and the ADB to design those elements of the reforms that are outside its areas of expertise.