Talks with the IMF

The IMF and Pakistan are attempting to resolve issues related to the Memorandum of Financial and Economic Policies. The IMF has said approval for the third tranche will be given only after this document is signed by a Pakistan’s top finance officer and put before the IMF board for approval. The key issues relate to the revenue collection target, energy crisis and, strangely enough, what the IMF terms Pakistan’s reliance on trade ties with China. The Fund wants Pakistan to expand agreements similar to those with China to other countries. It is unclear why this matter should be a concern for the Fund. But in the past, notably in Latin America, the IMF and the World Bank had been accused of attempting to influence the internal politics of the country through their hold over them on the basis of loan grants.

Sources say that IMF refused to agree to the FBR demand that its target of revenue collection of Rs5,238 billion be slashed. The FBR has already struggled to collect revenue. The PM, already under pressure from an angry public, has made it clear that there will be no further increase in gas and electricity prices. These issues were spoken over at length – with no agreement reached as yet. The IMF has however complemented Pakistan on its efforts and said it is moving towards the targets set by the Fund. It may be noted that the consequent requirement that Pakistan raise utility prices has been unpopular with people and the government is reluctant to put in place further unpopular measures given that it is also facing a crisis in food inflation.

Pakistan has, according to economic analysts few choices but to iron out its differences with the IMF. The country is desperately short of revenue at the same time and naturally needs to retain its good relations with China as its most dependable ally. The IMF suggestion that it broaden trade is a good one but Islamabad needs to assess how this would be possible. The FBR meanwhile wants a broader reduction in its target. The IMF is keen to avoid this given the target has already been reduced once. The difficulties of working with the IMF are becoming clear, but the government must find ways to correct the situation and meet at least some of the demands to avoid a further worsening of the situation over the next fiscal year.