A senior-level team of the International Monetary Fund (IMF) has completed its first round of talks with the Pakistani authorities since the Fund approved $6 billion bailout package for Pakistan in May.
The government’s economic team must be feeling elated over the fund’s officials’ remark that the IMF program was “off to a promising start”.
The IMF officials noted that though the government’s economic reform agenda was still in the early stages, there had been progress in some key areas.
According to the Minister for Finance Hammad Azhar, the IMF team termed the early results in the economy as “very encouraging” and revenue growth was “impressive”. The minister also quoted the IMF officials as remarking that good progress has been made on the fiscal and external fronts.
The progress noted by the fund’s functionaries included the transition to a market-determined exchange rate which they said had started delivering positive results on the external balance. Moreover, they observed the exchange rate volatility has also diminished, monetary policy is helping to control inflation, and the SBP had improved its foreign exchange buffers.
They further remarked that the taxes were showing double-digit growth net of exporters’ refunds.
They also appreciated the Federal Board of Revenue’s (FBR) work for improving tax administration and its interface with taxpayers.
Importantly, they said, the social spending measures in the program had been implemented.
The IMF team leader observed the current account deficit had been curtailed better and sooner than anticipated and hoped inflation would be contained in near future.
These positive remarks by the IMF team led by Ernesto Ramirez Rigo should form the basis for the first formal quarterly staff-level review of the program in late October or early November when it would more minutely scrutinise the economic targets sets for up to September in the program.
But, while praising the government economic team for making good start for the implementation of the program, the IMF team cautioned domestic and international risks remained, and structural economic challenges persisted. “In this context, the authorities need to press ahead with their reforms agenda,” the mission leader said in his statement at the end of the visit.
So in a nutshell, the IMF team conveyed to the government that challenges were still abound despite a good beginning and they would have to stay on course to reap the full benefits of the program.
Moreover, the government is yet to implement the more critical points in the program, which have political implications and may involve many unpopular decisions.
Though the government has so far enjoyed full support from all the tiers of the state, it has yet not been able to take political parties and parliament into confidence on its economic reform agenda.
Such political support is vital for the success of such reforms agenda because lack of political backing often force the government to make compromises on such critical reforms.
What’s more, if one looks through the history of the IMF dealings with Pakistan as well as with other countries, the international lender has been all praise for authorities through much of the program time and it’s only towards the fag end of the program when serious shortcomings are very prominently highlighted.
During the last program, carried out under the last government, the IMF gave over a dozen of waivers to allow the completion of its program, but once completed, the slippages were brought out in a highly pronounced manner.
It is for this reason that many economists believe the IMF has turned into a political forum whose policies are dictated more by politics than economy.
But support from the IMF for countries like Pakistan is a must as it helps them muster backing from other international financial institutions as well as win confidence of the foreign investors.
While Pakistan should stay on course to implement the IMF program, it should, at the same time, also step up efforts to enforce homegrown economic reforms agenda in the country.
Irrespective of whether the IMF demands it or not, it is important for Pakistan to promote tax culture in the country and the well-off segment of the society should be persuaded to take part in nation-building by paying their taxes.
Donor countries for long have been asking Pakistani authorities to make their rich people pay taxes as they could not burden their small taxpayers to foot the bills for Pakistan.
Similarly, Pakistan should explore ways to earn foreign exchanges instead of relying on international financial institutions and wealthy friendly countries to help it overcome balance of payment crises which pop up after every few years.
Exports are one of the most important avenues for earning foreign exchange. For years, Pakistan has been unable to register any significant increase in this sector, while other regional economies, particularly Bangladesh, have made mighty strides in this area for the past decade.
The local currency has significantly devalued over the past one year and hefty financial packages have been announced in the hope of giving boost to exports but the results never made any headlines.
Pakistan’s export sector needs to be overhauled in order to make it competitive with the regional as well as international rivals.
Attracting foreign investment is another major challenge for the government. Though security situation has markedly improved over the past few years or so, but the foreign investors are still shy of bringing their capital in Pakistan.
Rather the recent slowdown in economy is feared to dissuade private sector to invest their money in the local economy.
The government needs to redouble its efforts to ensure ease of doing business in Pakistan to attract foreign investment which would also create job opportunities in the country.
To achieve these targets, the government needs to focus more attention on economy and related issues and try to ease politic al tensions in the country.
Time is fast running out. The government needs to rightly set its priorities. If government failed to address economic challenges on time than they may get further complicated which would also deepen political problems for it.
The writer is a senior journalist based in Islamabad