ISLAMABAD – The International Monetary Fund (IMF) has categorically told the government to come up with economic reforms to qualify for the next tranche of $1.7 billion under the $11.3 billion standby arrangement which is suspended since May last year as Pakistan failed to implement the agreed reforms roadmap.
Pakistan has already received $7.5 billion but the IMF has held back two tranches, which, a source privy to the meetings between the IMF and the government said, are linked to the implementation of reforms. “The IMF plainly refused to release the held-up tranche despite the government again committing to meet all conditions in the next budget,” the source said.
He said the IMF rejected the request on the grounds that a similar commitment was made earlier but nothing actually happened. “The government had committed to implement the reformed general sales tax (RGST) in 2008 but it could not make the RGST part of the 18th amendment,” the source said, adding that broad-based economic reforms could not be implemented in Pakistan without national consensus.
“The IMF team, which recently visited Pakistan, noted that the political parties realized the enormity of economic crisis but lacked the will to take difficult decisions,” he said, adding that the IMF observed the situation in Pakistan was like a run-away train with no driver nor direction.
However, he said the IMF team ‘was heartened’ to see that there was at least a sense of realization among the political parties on the grave economic crisis, but noted that the realization was devoid of political will to implement economic reforms, adding that it advised the Pakistani government to take administrative measures to implement reforms while continuing dialogue for political consensus.
As the government could not meet the deadlines agreed with the IMF the IMF team, realizing there were political hiccups, strongly advised Pakistan’s economic mangers to take immediate steps to reform public sector enterprises and privatize them. “The team also advised the government to speed up the privatisation process to dispose of ‘bleeding’ state-owned enterprises,” the source said.
He said the IMF tacitly cited new conditions to privatize loss-making entities with off loading government shares of profitable corporations at the local stock markets. “The IMF did not agree that the current economic crisis in Pakistan is a result of last year’s floods. The team conveyed that the economic mess is a result of bad governance and non-development expenditure,” the source said.
The IMF team of the Director Middle East and Central Asia Department Masood Ahmed and Mission Chief for Pakistan Adnan Mazarei left Pakistan advising to retain the $11.3 standby arrangement facility. The IMF team also advised the government to own the economic reforms by swiftly implementing them, do away with all kinds of subsidies and pursue the privatization programme vigorously to resuscitate the economy and maintain financial assistance from the IMF and other development partners.
“It expressed serious concern on the $2 billion subsidies in the power sector, which it said were holding the economy hostage”. The government tried hard to placate the IMF team by saying it would revise the fiscal deficit to 6 percent of the GDP but it wouldn’t budge, saying that the fiscal deficit was increasing because of bad governance and non-development expenditure, while the share the floods had in the situation was minimal.
They said that the borrowing of over Rs 1 trillion from the central bank would push the country to hyperinflation, making living difficult for most people, thus making economic reforms more difficult and squeezing additional revenue generation in the future, the source said.
