IMF’s report card

The International Monetary Fund on Tuesday released another report on the performance of the Pakistani economy in relation to its set targets. The report came after an agreement with Finance Minister Ishaq Dar over the disbursement of the next tranche of IMF loans. The IMF report paints a gloomy picture, with most of the targets set by the international financial institution still unmet. The report has contradicted official claims on recoveries and circular debt in the power sector. Bill recoveries have actually declined in the current fiscal year while circular debt is still two percent of GDP. The conclusion is that Pakistan’s power sector was unable to curb its financial losses in the last financial year. Given that the IMF Mission Chief Harold Finger has pointed to the power sector as a priority, the government’s performance in the sector has been poor. This is despite Dar’s assurance of 100 percent recovery and taking measures to protect different electricity surcharges. With over Rs600 billion in circular debt still outstanding, the IMF has pointed to the Nepra report last week and the auditor general’s report for 2013-14 to show the serious fiscal challenges faced by Pakistan. These will be taken up in the next review of the country’s $6.64 billion bailout package.
The health of the country’s financial management remains an open-ended question. The IMF has disassociated itself from the decision to issue $500 million in Eurobonds at over eight percent interest. If the IMF mission chief is to be believed, the severely questionable Eurobond decision appears to have been one that the government took on its own. He has clearly stated that this was not a priority when the markets were ‘not so good’. This has contradicted another government claim: that the bond was issued on IMF directives. Overall, the IMF report still paints a rosy picture due to low inflation, robust growth and balanced risks. However, it points to increased risks including issues in implementation, legal challenges to surcharges, and political and security conditions. The report points to a serious risk that deficit target may increase beyond 4.3 percent and expresses doubts over the government’s ability to privatise Pakistan Steel Mills and PIA by the given deadlines. More than these, the report confirms how much of Pakistan’s economy and fiscal management is being micro-managed from the offices of the IMF. How well does following foreign diktat bode for the economic future of the country is an open question.