Minister for Finance Asad Umar has said the government is not in a hurry for International Monetary Fund (IMF) loan, citing Pakistan does not face an immediate balance of payment crisis as it has been averted (or delayed) for now, following the arrival of first tranche of $1 billion from Saudi Arabia.
This complacent approach is a highly undesirable strategy adopted by Pakistan Tehreek-e-Insaf (PTI) in the wake of several critical developments on economic, political, and diplomatic fronts.
The timing of US President Donald Trump’s tirade was quite significant because he started spewing venom against Pakistan exactly at a time when Pakistan and the IMF were engaged in policy-level talks in Islamabad. The US holds the voting power of almost 17 percent in the Executive Board of the IMF and many of its western allies toe the line pursued by Washington, so its support or opposition becomes significantly important for securing a bailout package from Bretton Woods Institutions (WBIs) such as the IMF and World Bank.
Some major bones of contentions hit the recent parleys, following the Fund asked the government to take some upfront beforehand actions to demonstrate its political will and seriousness for bailing out its sinking economy. The IMF wants to ascertain Pakistan is not trying to “use” it to come out of the crisis mode just like in the past when it secured loan programs but went back to its “business as usual” approach, ending up in a discontinuation of the same.
Due its track record, Pakistan is known as one- or two-tranche country among the comity of international multilateral agencies. Thus, the Fund wants to remove this concern so that it could tell its board members that Islamabad is now serious for effecting desired structural reforms with the political backing of all mainstream political forces of the country.
The Fund team has suggested remedial measures to control the yawning budget deficit. This budget deficit could escalate up to 7 percent of GDP if the government did not take additional tax measures for jacking up this ratio by 0.5 percent on immediate basis.
The IMF projected that the Federal Board of Revenue (FBR) would have to take taxation measures of around Rs360 billion to bridge this gap as on one side the tax machinery was going to face a shortfall of Rs200 billion in achieving its envisaged target of Rs4398 billion and on the other they would have to fetch additional Rs160 billion for increasing its annual target up to Rs 4558 billion for fiscal year 2018-19.
The status quo approach of the PTI will not work as all other friendly countries including China, UAE, and Malaysia have yet not come up with any commitment of a financial package on immediate basis.
Pakistan could hardly sustain till end February 2019, without major dollar inflows. Some independent economists worked out projections on macroeconomic front and came up with their finding that full-blown crisis could erupt if remedial measures were not taken by Islamabad till end of the second month of next year.
But the complacent approach adopted by the PTI is not going to solve our deep-rooted structural problems leading towards full-fledged crisis in the next three months, owing to massive repayment obligations and choking of dollar inflows on many accounts lately.
At this juncture, it is hard to comprehend why PTI-led regime is not moving towards signing a charter on economy at a time when the mainstream opposition parties including the Pakistan Muslim League-Nawaz (PML-N) and Pakistan People’s Party (PPP) are ready to move towards this objective. There is a need to decouple politics from the economy.
The IMF mission held meeting with the representatives of mainstream political parties and asked for political backing for undertaking desired structural reforms keeping in view the massive gaps on internal and external fronts of the economy that could only be fixed through hard and tough measures.
When contacted, PML-N Parliamentarian Ayesha Ghous Pasha, said the IMF’s mission chief Harald Finger raised certain issues during the interactions and there was an agreement that structural reforms would have to be undertaken to come out from the crisis mode. Pasha said the IMF raised the issue of National Finance Commission award during this meeting, however, she told them the structural reforms must be structured in a way that should not compromise the job market and protect the poorest segments of the society.
She further told them that bulk of youth was coming into job market and the country was, at the same, time emerging from a bad security situation, so they should not be deprived of employment opportunities because it posed the risk of plunging the idle youngsters into unwarranted activities.
On an upfront power tariff hike of 20 percent, surge in exchange rate and increasing general sales tax (GST) rate, the PML-N lawmaker said it would compromise competitiveness and could further shrink country’s exports in months ahead so governance in power and tax collection needed to be improved instead of jacking up utilities or taxation rates.
Pakistan-IMF two-week-long talks ended in a deadlock as both sides could not evolve agreement on Macroeconomic and Fiscal Policy Framework (MEFP) and attached conditionalities. However, they agreed to continue talks for evolving consensus in the next few weeks, which will pave the way for presenting a bailout package before the IMF’s Executive Board around January 15 to 25, 2019.
“We have covered 80 percent of the spadework in our parleys held with the IMF mission,” a top official of Finance Division said and in the same breath added that the remaining 20 percent would be done soon.
Pakistani side refused to yield to certain demands on jacking up tax revenues, tightening of monetary and fiscal policies, and sharing full details of China-Pakistan Economic Corridor (CPEC).
The IMF mission stated that discussions would continue in the coming week toward reaching staff-level agreement. Pakistani officials said both sides had divergent views on pace of adjustments and exact conditionalities so they decided to continue the talks for evolving staff-level agreement after which the signed Memorandum of Economic and Fiscal Policy Framework and Letter of Intent would be tabled before the IMF’s Executive Board by end January next year.
The major differences persisted on exact financing requirements, frontloaded or back-loaded program, raising tax-to-GDP by taking additional tax measures, hiking electricity rate by 20 percent, plugging leakages on power front so that no circular debt further piled up, erasing circular debt, and putting sustainability of debt into risk zone.
Pakistan’s team took time knowingly that there would be Christmas holidays in Washington from December 15 so that they were making last ditch efforts to convince the IMF staff for providing lenient view in Pakistan’s case just on pattern of some other countries like Argentina, where the IMF struck agreement on $50 billion package on three year Standby Arrangement (SBA) in June this year.
The IMF has also asked Pakistan to share details of inflows and outflows under CPEC and other accounts. Pakistani side said the repayment on account of the CPEC was not a substantial issue as it would start in coming years and would cross $3.2 billion-mark from fiscal year 2022. In case of ML-1 agreement, the repayment on all accounts might cross $4 billion-mark on yearly basis.
The IMF has suggested monetary and fiscal tightening in order to stabilise the economy; however, to this, Pakistani side said the independent monetary policy committee was in place without having any representation of finance ministry, so that body would decide the policy keeping in view the economic fundamentals.
The writer is a staff member