Pakistan to remain under tight IMF scrutiny

ISLAMABAD: Pakistan will remain under continuous surveillance of the International Monetary Fund (IMF) under its post-programme monitoring as the Fund’s outstanding credit for Islamabad exceeds by 200 percent of the quota threshold.

Pakistan fell in the post-programme monitoring after ex-finance minister Shaukat Tarin and former advisor to the finance ministry Dr Ehitsham Ahmed decided to avail maximum IMF resources at the first stage, which were later on augmented to up to $11.3 billion from an initial loan package of $7.6 billion under the Standby Arrangement Programme (SBA) that prematurely ended last year.

Tarin, however, told The News from Dubai on telephone that he considered it as a justified decision under the circumstances prevailing at that time. But Dr Ahmed considered that the decision was a ‘mistake’ and said that the augmentation was made on false premises.

In accordance with the Fund policy, the managing director of the IMF recommends the initiation of the post-programme monitoring (PPM). “The outstanding fund credit to Pakistan exceeds the 200 percent of quota threshold for the PPM, and there are no exceptional circumstances that would indicate that PPM is not warranted,” the IMF staff report said, which was released recently after Article IV consultation with Pakistan.

The IMF report further stated that the first PPM board discussion is envisaged by mid-2012. In addition, Pakistan is an exceptional access borrower from the Fund and, therefore, an ex-post evaluation (EPE) has begun, and a report will be produced for the Board.

Tarin said that they took maximum funds of the IMF in the best interest of the country. When Pakistan had already got the money there were no repercussions related to PPM done by the IMF at this stage, he added.

He said that Pakistan was in dire need to get foreign inflows at a cheaper rate in 2008 at a time when foreign currency reserves were declining fast. “What were the other options?” he questioned and added that Friends of Democratic Pakistan (FoDP) and other bilateral friends had refused to provide that much money, so the IMF was approached as a last resort. There was no money available from the international markets so the government at that time preferred to get IMF loan at the rate of 3 to 4 percent.

He said that if Pakistan had taken IMF loan in accordance with its envisaged quota it could have only received $2 to $3 billion and they required much more funding to restore confidence. About augmentation decision, he said, the government failed to implement the envisaged reform agenda that resulted into restricting out foreign currency reserves at just over $16 billion.

“If we had implemented the reform agenda, our foreign reserves should have been in the range of 20 to 25 billion dollars, having no problem to pay back the IMF loan,” he added.

But Dr Ahmed, who is currently senior fellow at the Centre for Development Research (ZEF) University of Bonn, and Asia Research Centre, London School of Economics (LSE), said via email that “this was a mistake, and the argument was made on false premises that we were going to complete the VAT (value-added tax) within a month, and needed a bridge to FODP moneys that was basically to ensure parity with other countries that had received similar amounts.” The IMF, he stated, should never have given Pakistan such large sums without effective conditionality linked to more tranches.

Dr Ashfaque Hasan Khan, former economic advisor to the finance ministry and director general NUST Business School, said when Pakistan took the decision to say goodbye to the IMF in 2004, the Fund offered PPM by citing example of Jordan, but the economic team led by Shaukat Aziz refused to accept the offer.

“The IMF was kind enough to allow Pakistan to come out of the IMF programme,” he said and added that Pakistan had not taken the last two tranches at that time because it would have resulted into reaching close to using 200 percent quota threshold making eligible for PPM.”