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LAHORE: Pakistan's new leadership expects first results of its planned steps to shore up its finances and ease a power crisis in two or three months and only then should decide whether and on what terms to seek an IMF bailout, a senior policy adviser said on Friday.
Most economists, lenders and rating agencies say that the nation's finances have reached such a critical stage that a deal with the International Monetary Fund will be necessary and the sooner it comes the better.
But Sartaj Aziz, 84, who has been advising incoming Prime Minister Nawaz Sharif, and is expected to take over as his chief economic and foreign policy adviser when the new government is sworn in in coming days, said a deal with the IMF now would be self-defeating.
“Right now, you can't reach an agreement with the IMF because the kind of conditions they would impose on you would not allow you to grow,” said Aziz, who served as finance and foreign minister in Sharif's two previous cabinets in the 1990s. “But if our economic revival package starts working in two months, three months' time, and it is clear that exports are picking up, our revenues are going up, then you need much less adjustment than indicated by the present situation.”
The Asian Development Bank, one of Pakistan's major lenders, estimates it will need $6 billion to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF package suspended in 2011.
But Aziz said those needs may prove smaller if the economy responded to new policies. “We may have to go to the IMF, but if we go with the revived economy then probably all we will need is a loan to cover the repayments,” he said. Aziz said talks with the IMF were going on and did not rule out a decision sooner if a thorough review of state finances by the incoming government showed that the situation was more serious than thought.
Sharif, toppled by the military 14 years ago, swept back to power in a landmark May 11 election that marked the first transfer of power between civilian governments in Pakistan's 66-year history, about half of which has been spent under military rule.
Nearly broke
That, combined with a strong voter turnout and a clear majority captured by Sharif's Pakistan Muslim League-Nawaz (PML-N), raised hopes for economic revival and greater stability. But he takes over a country that is almost broke, plagued by a Taliban insurgency and sectarian violence, crippling power cuts and a growing army of unemployed.
The nuclear-armed country of 180 million, the world's sixth most populous, has long been an economic underachiever, habitually relying on aid from international partners concerned about its strategic importance. Aziz, who led work on the PLM-N's policy manifesto, said the new cabinet would tackle in its first 100 days the most pressing challenges of power shortages and financial haemorrhage with a series of steps to cut waste and improve efficiency.
Aziz said tackling inefficiencies, clamping down on those who don't pay bills, should help squeeze 10-12 percent more energy from the existing system, and the Pakistani people, some of whom have no electricity for 20 hours a day, should feel the difference in coming weeks.
On the budget side, the government will overhaul loss-making state firms by installing managers with private sector credentials, tighten tax collection by building computerized databases and freeze hiring by government agencies, Aziz said.
But he suggested the new administration had little appetite for quick, but painful fixes prescribed by the IMF and others - an increase in electricity tariffs and subsidy cuts and abolition of special tax exemptions granted to well-connected businesses and individuals.
Asked what concrete steps would follow Sharif's declared intention to improve ties with India strained by a long-standing dispute over the Kashmir region, Aziz brought as examples relaxation of visa requirements, removal of non-tariff barriers and the better integration of energy systems.
Asked what concrete steps the new government would take to improve Pakistan's security, essential to boost its investment appeal, Aziz acknowledged there was no blueprint. “The problem is that security and foreign policy are not entirely under our control. Economic vision is under our control so we can spell it out, but what happens to Afghanistan after the Americans withdraw in 2014 also plays a role.”
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Comments (9) Closed
Taking one loan to pay off another loan - what brilliant economic policy. Bhutto had promised to get nuclear bombs even if Pakistan had to eat grass, and sure enough, Pakistan will get an opportunity soon to do just that, if such economic policies are followed.
Why IMF again? IMF wants us to take more loan from them. Their Agenda is not to improve the economy of any country. They want us to be their slaves so that we can be controlled by Western Powers. IMF is not designed to help grow the economies. Pakistanis are already living without electricity for as long as 20 hours a day. We have already hit the bottom. More IMF loan means another devaluation of our currency. The nation cannot lift that burden. We can fix it by ourselves. Honest leadership is needed, reduce the corruption, reduce government size and unnecessary lavish spendings, get financial help from overseas Pakistanis. A systametic approoach is needed. 20% of the energy crisis can be solved just by taking drastic measures against corruption. Another 20% just by colelcting the taxes and bills. This can be achieved within a few months. We are capable of handling our own issues. Just take seriously for once Mian Sahib. Just for once declare an emergency against corruption. You have got this golden opportunity Mian Sahib that you MUST utilize. The whole nation is with you. Do not get into this trap of IMF again. Throw the begger's bowl. Please...
Sir please do not repeat like last time, ie: taking over the forign exchange accounts of people, if you plan this than Mr Sharif should bring all his money from abroad including investments in saudi Arabia back to pakistan.
Mr. Sartaj Aziz I hope you will not forget these words in the days to come
@BRR:
I totally agree that a new loan to pay an old one is shambolic.
Irrespective, there is no such thing as a 'peaceful' and defenceless country. Recent history teaches us that unarmed or poorly armed countries are liable to be attacked if they are also resource rich and attempt to follow independent policies. Recent examples are IRAQ and LIBYA .
Bhutto was right to inform the nation of the cost of obtaining such 'defence' capability and acquiring it.
Pakistan is poor and 'anarchic' also because of our myopic policies, poor implementations and to a great extent corruption at all levels. Lets attend to these first before imputing 'defence' costs.
@BRR: Then what would you suggest they should do? 16000 billion rupees of domestic loans taken by Zardari government (that's about 160 billion dollars), of which 9000 billions gone to corrupt pockets (as per their own NAP chairman) is the core reason for us to stand where we stand today. Only other thing, they should be doing is to broaden the tax collection base specially by including the agriculture sector in to the bracket which could give us an extra 400 billions a year but that too looks to be an impossible task with all the landlords sitting in the parliment and making it an untouchable issue.
Only way up is to collect another 1000 billion rupees of taxes every year and then cut down government expenses 10-15 %. Abolish Be-Nazir income support and give no raise in wages in 2013/2014 except raising the minimum wage by 2000 rupees. I would have have done the following (1) Tax the agriculture sector excluding the small farmer (2) Conduct a grand survey in whole country to identify one million of those who are avoiding the system (3) a new 4% basic tax on each and every earner regardless of his/her income. This basic tax should have no examption at all. To start with, the government and the privat sector should award a 4% raise to all low income employees as a compensation. (4) Gas supply to CNG should be abolished and the gas supply for domestic usage should be limited to cooking hours only. (5) UPS'(baterries), airconditions and generators should be taxed. (6) Production of domestic fans running on 75 watts should be prohibited and the new production should use motors which consume only 25W. There are refined motors available in Malaysia and in the West, which with low consumption give a fan equal output as to old motors. (7) Let the people produce there own electricity by installing solar pannels. The system should purchase the surplus production from them and then supply to them back in night hours (by using a two way meter), it will abolish the storage costs for the producer as he will be using the system as a storage hub.
cutting sbsidies and not inproving the efficiency oo power generation companies and not stopping the line losses will kill the poor. Simply, the poor have to pay more as bills every month for those who dont pay.
@Shahid: The Benazir Income Support program is paid by the World Bank and is aid to Pakistan, so we gain nothing by removing it. The new government could change the name if they like but its not our money anyway.
One of the biggest advantages of CNG is that it has removed obnoxious fumes from our cities. The question really is that why can't we use more imported gas which is anti pollution and less petroleum? We should use more gas in everything and have a better quality of life.