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Business

March 7, 2015

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IMF counts security challengesin setting economic targets: official

LAHORE: The International Monetary Fund (IMF) understands the security challenges facing Pakistan and it takes them into account while working with the government to set the macroeconomic targets, its top official said on Friday.
IMF Director for Middle East and Central Asia Masood Ahmed, in a discussion with the students of various universities, said countries like Pakistan spend far more money than they collect and this leads to macroeconomic crises.
Responding to questions about the IMF’s conditionalities related to cut in development expenditures and regressive taxes, Ahmed said the governments tend to slash development expenditures immediately, which means there are significant reductions in spending for critical sectors, like health and education.
He added that for this reason the IMF now includes in its program a requirement that governments maintain a certain level of spending in the critical social sectors.
The funds director clarified that the IMF does not get involved in determining specific taxes, but is more concerned with the overall objective of macroeconomic stabilisation.
About the recurring IMF’s programmes, Ahmed said Pakistan has some basic structural problems, and requires IMF assistance.
Within a year or two of the IMF program, the Pakistan’s government feels that the crisis has passed and stops following the IMF advices, which results in reemergence of the crisis and a subsequent recourse to the Funds, he added.
He explained how the severe balance of payments crisis that Pakistan faced in 2013 led to a significant reduction in its foreign exchange reserves, which in turn led the Pakistani government to sign up the latest three-year $6.64 billion extended fund facility of the IMF.
Reserves held by the State Bank of Pakistan fell by some 45 percent in one year to hit the critical level of $6 billion as of end June 2013.
Ahmed said the IMF is different from other international agencies, like the World Bank

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and the Asian Development Bank, which focus on development assistance with lending for specific projects and initiatives.
The IMF focuses on macroeconomic stabilisation with a specific emphasis on fiscal deficits and exchange rate adjustments, he added.
The IMF director dispelled the impression that a few countries take all the loan program decisions. The decisions taken by the IMF Board are based on a consensus among the members, he said.
He said energy crisis in Pakistan is major challenge for policymakers as well as those who are interested in macroeconomic stabilisation and long-term growth.
Different countries differently handled the fall in prices. Some countries like Pakistan have decided to pass on a significant portion of the fall in oil prices to the end consumer, while others like India have kept the fuel prices same by raising taxes on petroleum products in order to increase domestic revenues.
Ahmed advised economists and policymakers to discuss with the students long-term economic strategies in order to develop inclusive policies, which lead to long-term growth.
Ex-Finance Advisor and Rector of the Lahore School of Economics Dr Shahid Amjad Chaudhry, Dean Faculty of Economics Dr. Azam Chaudhry, IMF Pakistan Mission Chief Herald Finger and IMF Resident Representative for Pakistan Tokhir Mirzoev were also present on the occasion.

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