After a set of meetings in Dubai, the International Monetary Fund (IMF) has approved another tranche of $510 million for Pakistan as part of an agreed upon bailout package. Commitments were secured that the Pakistan government would continue the agenda of fiscal reform by expanding the tax net, roll back loss-making public-sector enterprises and reform the energy sector. Before the agreement, Pakistan managed to push the IMF to reset the budget deficit target to a more achievable one. The economic growth target has been revised down from 5 percent to 4.5 percent. Given the precarious security situation, this is still a steady showing on the part of the federal government. A key achievement during the last quarter was that the FBR met its revenue targets unlike the last quarter. This emboldened Finance Minister Ishaq Dar to claim that Pakistan would be close to meeting the Rs3,104 billion target set for revenue collection. While this is certainly impressive, it is discounted by the fact that the increase is mostly the result of the increases in indirect taxes.
In the eyes of the IMF, progress has been delivered. In April, the Fund made it clear that it was satisfied with the conversion of PIA into a company. It has also expressed satisfaction with the overall direction that has been taken by the economy. However, it still wants progress on the Pakistan Steel Mills as well as on power sector reforms. The process of economic recovery has been slow and painful. Surprisingly, little of the IMF’s original commitments have been delivered over the course of the bailout package. In reality, the power sector and public-sector enterprises remain in almost the same position as they were three years ago. Real economic growth has been difficult to see as power shortages and terrorism continue to cripple the economy. The government is now faced with a tough choice: should it take another bailout from the IMF or should it attempt to manoeuvre a path to development on its own? The decision should ideally have been taken before this year’s budget is presented. If Dar’s claims of macroeconomic stability are true, then there is little reason left to continue to receive dictation on the direction that the country’s economy should pursue. We share the hope that the next IMF review in August will be the last one – but we are probably being a bit too hopeful.