The IMF has finally accepted that Pakistan need not apply for a new assistance programme from the international monetary agency after the current $1.47 billion Poverty Reduction and Growth Facility expires next year. This has happened because after the sixth quarterly review of the IMF programme between the senior officials of the IMF and the ministry of finance, the IMF has come to the conclusion that the financial and fiscal management in Pakistan has reached a certain maturity or balance.

Notably this is the first IMF programme which is being completed in the over 40-year-long assistance seeking history of Pakistan from the IMF. Otherwise Pakistan has been known in the IMF circles as the “first tranche” country, as Pakistan had disregarded the various clauses of numerous agreements after the first tranche had been received by it. Pakistan’s top negotiators were finding it too much to submit themselves to the heavy hectoring or impractical demands of the junior IMF officials. For all the lecturing they got, the money they received was very small and was spread over a three year period and had to be returned to the IMF punctiliously as preferred debt.

So Mr Shaukat Aziz decided not to continue with a new programme after the expiry of the current PRGF and rely on our own resources. That does not mean the IMF officials will not make themselves heard before the Pakistani officials, as they will have to meet each other for consultations under Article 4 of the IMF, before they issue a chit of good economic health to Pakistan. This chit is essential for Pakistan to get a good international credit rating so as to encourage foreign investors and donors like the World Bank and the Asian Development Bank who are to give Pakistan around a billion dollars each, every year for major development programmes.

In fact is it because of this large assistance from the two international agencies and the $3 billion aid indicated by President Bush for the next five years, that Pakistan feels encouraged to do without the IMF assistance with its hard conditionalities.

Also helpful to Pakistan in this area is the $11.5 billion foreign exchange reserves it has built up. And the $4 billion home remittances of overseas Pakistanis and the vastly improved balance of payments position and the rise in exports to over $11.2 billion last year.

In fact, the relationship with the IMF has improved so much that its visiting executive director Abbas Mirakhore has said after the sixth review of the progress of the PRGF, that hereafter the review would take place every six months and not every quarter. The World Bank and the ADB do not always agree with the assessment of the IMF, but they largely go along with it, as the IMF makes its study very minute.

The three agencies appreciate the progress in the macro economic sector, which Pakistan has made, and its headway with the economic reforms in recent years. But they have also identified large problem areas. The World Bank says the external and domestic loans of Pakistan are heavy and need to be reduced. The ADB says new investment is not coming forth in the requisite measure and Mr. Mirakhore urges Pakistan to do some aggressive investment promoting, underscoring its advantages for investors. Meanwhile Pakistan wants $300 million to $400 million for repairing the dams. There are other critical problem areas which the IMF has noted. They include the ever rising poverty and poor governance, fiscal laxity and weak management of the public sector, particularly the power sector.

Milan Zavadjil, head of the IMF review mission, says “poverty is too high in Pakistan” although most of the economic indicators are performing quite well and Mr Mirakhore says that the increased spending is absolutely crucial in the next five to ten years. This spending on poverty reduction needs to be increased and made effective, he says.

The IMF, World Bank and the Asian Development Bank are ready to provide Pakistan the necessary assistance to reduce poverty, which is otherwise rising. But how to achieve and sustain the campaign against poverty and to ensure good governance are major issues when the country’s leaders who are usually rich are not concerned with this issue. The IMF and other agencies are concerned with the heavy losses of Wapda and the KESC which received total assistance of Rs52 billion from the federal government last year. If such heavy losses can be reduced the fiscal deficit of the government will go down from the current 4.5 per cent of the GDP and improve the fiscal picture.

Energy in Pakistan is overpriced and overtaxed. POL prices have gone up by 100 per cent in four years, despite the special Saudi oil facility. Consumers are burdened with a tax of 64 paisa per unit of power. The additional tax imposed by the government has gone up 13 times since 1998 when it was five paisa per unit. Wapda and the KESC on their part have been complaining bitterly of the high cost of furnace oil which keeps on rising. It was said recently by an economist in the US that 6 out of 7 recessions in the US were caused by rise in oil prices. Pakistan cannot be an exception to that. And the rise in poverty in spite of the official talk of reducing it may be the result of the ever-high oil and energy prices. But the IMF stands for high oil prices in Pakistan to collect larger revenues as well as raising the price of gas to world levels. When the prices of essential goods and services have been rising, poverty cannot come down or employment rise in a heavily populated country. The IMF is certainly standing up for high oil price policy so as to boost official revenues. And now the government has authorized the KESC to increase its tariff by seven paisa per unit. There is to be no relief in this area for a long time while gas prices will hit the world level within three years.