The International Monetary Fund (IMF) would be “very happy” to sit down with Pakistan’s leaders if they sought a new multibillion-dollar loan, Masood Ahmed, the fund’s Middle East and Central Asia director said.
“What we have said to them is that if they do decide they would like a new arrangement, the fund would be willing and ready to look at that,” he said in an exclusive interview with London-based Emerging Markets.
“At the moment we are doing everything we can, but if Pakistan thinks it would help them to work with us on a new loan programme [and if] they come to us looking for support [on a new loan], that is something we could bring to our board.” Ahmed stressed the need to deal with the issue of the country’s fast “deteriorating” foreign reserves, which have fallen in recent months from $18 billion to less than $15 billion.
“I think that if [Pakistan’s leaders wanted to] come to the [IMF] to talk about their foreign reserves, that is a decision they would have to make themselves. But if they come to us, we would be happy to look at [their problems] with them.” Any new loan “would be dependent on ensuring that certain loan commitments are in place” beforehand. This would include a pressing need to push through essential structural economic reforms, and to seek ways to broaden Pakistan’s tax base to bridge a widening fiscal deficit.
Only around $8 billion of the $11 billion loan package agreed with Islamabad in 2008 was extended to the government. The fund, concerned that much-needed reforms were being postponed or scrapped by the troubled nation-state, pulled the last $3 billion in funding.
Ahmed said there was no sign that US support for Pakistan – politically or, through the IMF, financially – was wavering, despite secretary of state Hillary Clinton’s recent warning that Pakistan had failed to deal with the twin issues of capital flight and tax avoidance by the super-rich.
“I don’t get the sense that US support is dwindling,” Ahmed said. “But if you look at the kind of reforms that are needed in Pakistan, they are on the structural side. Beyond much-needed reforms in the energy sector, you need to look at raising the level of tax-to-GDP levels, which is among the lowest in the world.”
Ahmed insisted that there had been no stalling over loan repayments by Islamabad. He said all debts had been settled, in full and on time, so far: the next loan repayments were slated for November and February. But he was downbeat over Pakistan’s economic prognosis. Inflation had slipped in recent months into the single digits, but it remained “higher than we would like”, he said. Then there was the troubled state of the wider economy. “[Pakistan has] a level of growth that is not generating enough jobs and inflation above the level that [would be deemed] desirable,” Ahmed said. “They have a fiscal deficit that’s too high, and that is driving macroeconomic imbalances.”
Ahmed pointed to several urgent problems that Pakistan needed to redress in order to get the economy moving again. He highlighted the need to impose further fiscal restraint, to tighten monetary policy and, most pressingly, to impose much-needed structural reforms in areas like the energy industry, where he said power cuts had “led to all manner of hardships” for consumers.
