ISLAMABAD: The government said on Friday it was ready to take ‘further corrective measures’ proposed by the International Monetary Fund (IMF) to restore economic stability and inclusive growth, apparently setting the pitch for a coming bailout package from the fund.

After recently concluding a week-long dialogue with the Pakistani authorities, a visiting IMF mission has welcomed measures taken by the Pakistan Tehreek-i-Insaf (PTI) government like currency depreciation, hike in interest rate as well as gas and electricity tariffs and fiscal tightening, but said these were “not sufficient”.

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The IMF staff team stressed the need for a decisive policy action on further exchange flexibility and tightening of fiscal and monetary policies along with structural reforms and “further increase in gas and power tariffs” to address the difficult economic situation Pakistan is facing, with high fiscal and current account deficits and low foreign exchange reserves.

After the departure of the fund mission, the ministry of finance said it largely shared this assessment and was “committed to take further corrective measures to restore stability and inclusive growth”.

A new fund programme may require full free float of exchange rate and policy rate in double digits

Informed sources said in its wrap-up meeting with Finance Minister Asad Umar, the IMF mission was of the view that electricity and gas tariffs should fully meet the costs recoveries to enable the power companies to simultaneously use additional funds for efficiency gains.

They also indicated to the government that based on economic fundamentals a new fund programme might require a full free float of the exchange rate and the policy rate in double digits.

The fund was also not satisfied with the outcome of the revenue measures introduced in the supplementary budget to deliver on revised targets along with insufficient provincial finances to meet fiscal deficit target of 5.1 per cent. Therefore, the fund expects the government to take “tough economic decisions”, including additional stability measures like revenue generation and utility price hikes.

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The sources said the major problem with the government was the selection of timing for a formal request for an IMF support and it appeared the formal request had been delayed until the end of this month. They said Prime Minister Imran Khan was showing reluctance to seek an IMF programme during his first 100 days in office and the least before the Oct 14 by-elections because his political campaign had been based on getting rid of begging bowl.

Most of the PM’s economic advisers, including the finance minister and the advisers on commerce and industries and government reforms, because of their traditional economic background, had a different point of view. They insisted that the country required a fund programme more for credibility than funding requirement to ensure smooth flows from multilateral lending agencies like the World Bank, Asian Development Bank and other bilateral lenders.

Not only the lenders but the rating agencies treat IMF umbrella as a key factor in their decision making, ultimately reducing the cost of borrowing from bilateral, multilateral or capital market bond holders.

An official said some people close to the prime minister believed that the IMF programme would compromise the government’s ability to introduce policies envisioned in the PTI manifesto and hence it’s standing among the people. Therefore, the funding requirements should be met from friendly nations and through bringing home foreign wealth of Pakistani nationals.

On the other hand the economic advisers do not support such non-bankable avenues in view of real hard challenges of debt management that require at least $11bn additional injection during the current fiscal.

The statement by the ministry of finance said the IMF viewed in right direction the recent steps taken by the new government. “The visiting team was of the view that further actions are required to be undertaken to correct imbalances in the economy and put it on a path of sustainable growth,” the statement said.

The finance ministry said the government largely shared this assessment of the economy. It said the government was committed to take decisive corrective adjustments, going forward, to restore the economy on a path of stability and growth.

However, it added that in the ministry’s point of view fiscal and price adjustments alone were not sufficient, and that unless the much-delayed deep structural and institutional reforms were implemented with firm and unflinching resolve, the entrenched imbalances plaguing the economy would keep resurfacing.

The statement said the country was committed to protecting the poor and vulnerable segments of the society and the government would invest more in social protection, human development and job creation to ensure that the burden of adjustment was not unjustly imposed on the weaker segments of society. Along with structural and governance reforms, revival of domestic industry and export sector were high priorities of the government, it added.

Published in Dawn, October 6th, 2018