Working with IMF

Published November 11, 2023

WITH the IMF mission in Pakistan reviewing the progress made on its short-term $3bn loan facility goals, the performance of the economy during the first quarter of the current fiscal year has come under the spotlight. So far, media reports, quoting unnamed Pakistani officials, suggest that the technical talks, which will lead to policy discussions from next week, between the two sides have moved smoothly.

With Islamabad having met most of the fiscal, monetary and other programme goals — with a few deviations here and there — there are hopes the Fund will release the second tranche of $710m once the review is over.

It is encouraging that Pakistani authorities are working proactively to address the Fund’s concerns regarding potential slippages during the remaining period of the nine-month programme.

For example, a report says that Pakistan has suggested some “backup measures” including the imposition of a fixed tax on retailers from January to cover likely fiscal slippages due to the potential shortfall in targeted import and other tax revenues.

In case of further revenue gaps, the government is prepared to increase tax recovery from real estate to meet the full-year tax target of Rs9.4tr. The IMF is said to have assented to the proposal, but it remains unclear how much additional revenue the finance ministry wants to collect from retailers or the real estate sector. Likewise, there’s no issue between the two sides regarding the need to curtail public development spending to meet the deficit target.

Apparently, the IMF’s major concerns pertain to possible interventions in exchange rate management, the role of the SIFC in attracting FDI in both green-field and brown-field projects through privatisation, and the government’s ability to raise bilateral and commercial loans to meet external financing needs.

The talks are ongoing and these concerns will, hopefully, be addressed during policy discussions next week. Analysts are confident that the country will meet most IMF goals even if some concerns remain on SIFC plans and the materialisation of investment commitments in the Gulf countries.

The successful completion of the present programme is crucial for Pakistan to be able to secure a bigger and longer-term bailout from the lender to put the economy back on the road to growth. While some caretaker ministers have in recent months claimed that Pakistan will not need another IMF loan once the promised Gulf investments materialise, realities dictate otherwise.

As an economy that consumes more than it produces, Pakistan has repeatedly gone to the IMF for help because of decades of poor governance, bad economic policies and wrong priorities. The country’s chances of overcoming these chronic structural problems in the near to medium term outside the strict discipline the IMF imposes are slight if not impossible.

Published in Dawn, November 11th, 2023

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