ISLAMABAD: The finance minister and his team are off to Washington to preside over the end of the current IMF programme. Of the nine programmes that Pakistan got into with the Fund, eight have been unsuccessful.
The government’s inability to implement three major economic policy commitments — limiting fiscal deficit to 4.7 per cent of GDP, introducing integrated value added tax (VAT) and power sector reforms — will lead to technical completion of an unsuccessful $11.3 billion programme with the International Monetary Fund (IMF) on September 30, according to Finance Minister Dr Abdul Hafeez Shaikh.
This is the eighth programme with the IMF to conclude on an unsuccessful note. On the eve of the departure of Pakistan’s economic team for Washington to attend annual meetings of the IMF and World Bank, the finance minister told journalists that Pakistan would not waste its energy on revival of the incomplete programme or seek a fresh programme owing to a comfortable external balance of payments position.
He, however, said the government would stay on course on power sector reforms and macroeconomic adjustment and stabilisation programme and take steps so that it has reasonable credibility to return to the IMF programme with ease in case of any difficulty with external account.
The economic team will remain in the United States till September 27, another official said. The government had secured a $11.3 billion programme in 2008 and got disbursements of about $7.6 billion, but failed to get the remaining $3.7 billion due to slippages in performance criteria, leading to suspension of the programme since May 2010. The programme was extended for nine months until September 30, but disbursements were not resumed owing continuous non-observance of agreed measures.
Officials said the government might have to increase electricity tariff by 10-12 per cent if it succeeded in pushing forward the power sector reforms to reduce subsidies. The Deputy Chairman of the Planning Commission, Dr Nadeem ul Haque, said he could not even imagine the quantum of tariff increase required to be introduced in case reforms failed to progress because the power sector’s financing gap stood at about Rs250 billion this year.
Officials said the government had committed to the IMF to contain the fiscal deficit below 4.7 per cent of the GDP after the last year’s floods, which was later revised to 5.3 per cent of the GDP. However, the government could not meet even the revised fiscal deficit limit which officially exceeded 5.9 per cent at the end of the financial year on June 30 this year.
The government also could not introduce the value added tax in an integrated form and then it could not show a good performance on power sector reforms which also contributed to higher than anticipated fiscal deficit.
The official said both the government and the IMF understood that spending energy on revival of existing programme for a couple of billions of dollars were of no use.
The government’s comfortable feeling stems from anticipated $37 billion earnings from a five per cent growth in exports and strong workers’ remittances during the current fiscal year, enough to meet the country’s foreign exchange requirements with a current account deficit of about 1-2 per cent.
The officials said the government would have to repay $1.2 billion to IMF during the current year in two instalments and it estimated a gap of $500 million to a maximum of $2 billion during the year.
The finance minister tried to explain how the government could remain fiscally responsible in the absence of an IMF programme when elections were fast nearing. Reminded that the previous government had given up the IMF programme prematurely which later led to a freezing of power tariffs and build-up of oil-related subsidies and that the current government was also following the same path ahead of elections to leave a poor economy for the next government, the minister said elections were never discussed in any official meeting.