IMF says social spending important part of loan program

KARACHI: The International Monetary Fund (IMF) keeps impact of structural reforms on masses under consideration during an ongoing discussion with Pakistan for a potential $6 billion loan program, its spokesperson said on Friday.

“Social spending is and protecting social spending is in fact an important part of the discussion that we are having on a program with Pakistan,” IMF’s spokesperson Gerry Rice said in an online media conference.

Rice was answering a question about a criticism in Pakistan that the IMF is purely concentrating on increasing taxes and prices and doesn’t care about reducing the problems of the common man.

In May, the authorities and the IMF team reached a staff level agreement on economic policies that could be supported by a 39-month extended fund arrangement for about $6 billion. The agreement is subject to IMF management approval and to approval by the executive board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.

The prior actions include a market-determined exchange rate to help the functioning of the financial sector. The rupee freefall against the dollar triggered a wave of price hikes in the country facing trade deficit of more than $37 billion. Rupee continued to slide since the bilateral agreement reached. Overall, the local currency has lost nearly 10 percent so far this year after shedding a hefty around 37 percent last year.

The government earlier this week unveiled federal budget for the fiscal year of 2019/20, proposing more than Rs600 billion worth of new taxes and withdrawal of tax exemptions to achieve ambitious revenue collection target of Rs5.5 trillion in the next fiscal year.

The IMF’s spokesperson didn’t comment on the budget.

“But in terms of our discussions, I can say that we are talking about broadly how to restore stronger, more balanced growth by reducing domestic and external imbalances, improving the business environment, strengthening institutions, increasing transparency and importantly protecting social spending,” Rice said.

Cash-strapped Pakistan is betting on upcoming IMF’s loan program to generate additional $2 to $3 billion from the World Bank and Asian Development Bank at relatively lower interest rates.

“Once approved by the IMF board, the loan program will signal government resolve for fiscal discipline and reforms leading to favourable response from international capital and investors, achieve stabilisation of the economy, and build a sustainable platform for growth,” State Minister for Revenue Hammad Azhar said in his budget speech.