Pakistan could say permanent goodbye to IMF if everyone starts paying their share of taxes.
ISLAMABAD: Pakistan has taken the decision to say ‘goodbye’ to the International Monetary Fund (IMF) for the time being after the existing $11.3 billion Standby Arrangement (SBA) programme ends on September 30, a senior official told reporters on Friday.
The decision has been taken in view of the comfortable balance of payments position in accordance with the conservative estimates of the Ministry of Finance for the current fiscal, an official of Gilani’s cabinet confided to a select group of journalists. “We will have to get another loan programme from the IMF but our assessment shows that the external account will remain within a comfortable position, raising no need to seek fresh IMF money within the ongoing fiscal year ending on June 30, 2012,” the official said in a background briefing on Friday night.
Top economic wizards were asked whether there was a possibility of plunging into loose fiscal policy in an election year that could pave the way of another severe crisis, and whether the timing of approaching the IMF might bring tough conditions then. The experts were of the view that they would definitely pursue key reforms in the next few months and the decision to seek a fresh loan programme would be taken much prior to any expected crisis-like situation.
The officials claimed that they would not let anyone stray from the path of pursuing key reforms in areas of the cash-bleeding power sector, mobilising revenues and curtailing expenditures in a bid to contain the fiscal deficit within the desired limit even at a time when Pakistan would be no more under the IMF programme. They said Pakistan could not come out of the IMF programme over the medium term, so they would continue engagement with the Fund during this stopgap arrangement.
Later, Minister for Finance Dr Hafeez Shaikh told reporters that Pakistan would continue engagement with the IMF and it was agreed that the Fund mission would hold Article IV (4) consultation with Islamabad authorities next month.
When he was asked about the consequences of having no IMF programme on the prospects of obtaining funding from other multilateral institutions such as the World Bank and Asian Development Bank, Dr Shaikh said that it would impact efforts to obtain loans from these multilateral institutions but their project aid would continue as witnessed in the last financial year.
However, in a background informal briefing, another top official of Gilani’s government told reporters economic wizards felt Pakistan’s current account deficit (CAD) would remain in the range of 1 to 2 percent of the GDP during the current financial year. The economic managers, the official said, took the decision to abandon the existing IMF programme by not asking the Fund to release the last two tranches worth $3.4 billion after learning that they remained unable to deliver on fiscal deficit, enforcing integrated Value Added Tax (VAT) and committed power sector reforms.
“We have estimated that despite this, the high base exports will grow by 5 percent and remittances will continue with the same pace in the next 10 months of the current fiscal year,” he said, adding that Pakistan would have to repay $1.2 billion to the IMF as principal and interest payments in two instalments but the country’s foreign currency reserves might decline in the range of $500 million to a maximum $2 billion compared to the existing level of over $17.5 billion.
Dwelling on the cash bleeding power sector, top officials said there were different scenarios for raising the power tariff. “With reforms in the power sector, the electricity tariff might be increased in the range of 12-16 percent in the current fiscal year,” they added.
They said that the ministerial committee would submit its recommendation to overcome the torturous energy sector problems after IMF’s annual meeting and a summary would be tabled before the cabinet by next month.
The monster of circular debt, he said, was much more complex than they initially thought and now stood in the range of Rs250 billion to Rs300 billion. “It is a symptom of the problems and if unresolved will re-surface again,” he added.
Highlighting 8-points necessary to bring the desired changes in the power sector, he said that there was a need to bring corporate governance, make required changes in the regulatory framework, ensure recovery of bills from the public and private sector (private sector non-recovery touched Rs155 billion), take measures to ensure capacity utilisation on a short-term basis, upgrade the existing system, and ensure gas availability and conservation plan as major ingredients to overcome this crisis on a permanent basis.
The official said that the government had finalised steps to monetise the provision of cars by devising rules with the help of the Establishment Division. He said a summary would be moved to the prime minister for approval while this monetisation would be implemented from October 1 or November 1, 2011. The pension fund as promised in the finance minister’s budget speech will be established from March 2012. To review the existing pay structure to abolish anomalies, he said that the Pay Commission would be notified soon.
