Byline: Shabbir Kazmi
When the Government of Pakistan (GoP) entered into an agreement with the International Monetary Fund (IMF) for a bailout program one of the biggest apprehension was that the conditions imposed by the Fund may plunge the country deeper into problems. After the conclusion of recently held review the Fund has asked the GoP to definitely achieve the revenue target, keep a cap on issuing new guarantees and put into effective implementation of circular debt reduction strategy.
The IMF advice can be summed up as, 'address longstanding issues by undertaking structural reforms and strengthening institutions through legal framework to make the country competitive'. This requires strengthening cooperation at the federal and provincial levels for greater fiscal and economic discipline. While some analysts may term it 'Do More' mantra, the overwhelming consensus of analysts is whether the Fund insists or not, Pakistan has to take corrective measures to usher sustainable GDP growth to overcome its woes.
Reportedly the mission has appreciated policy stance of State Bank of Pakistan and wanted its continuation in the short- to medium-term period. The Fund wants the government to play a more proactive role in ensuring independence of the central bank through legal instruments. The Fund has also called the GoP to avoid any tax exemptions and take decisive steps towards 'harmonization of taxes and removal of distortions' at federal and provincial levels.
The Fund also wants further progress on implementation of Public Finance Management Law and noted that there were still public funds outside the single treasury account, which should be phased out at the earliest. This will further add to the fiscal cushion as all public funds would remain in single account, providing greater maneuverability to the government.
The IMF has insisted on strict adherence to Rs1.6 trillion worth of government guarantee limit and discussed various options with the Ministries of Finance and Power regarding tariff issues. The fine print of these options would be part of the staff report and may be made public as part of concluding statements.
The mission also reportedly insisted not to lose sight of the fiscal discipline that had delivered dividends in the first quarter of this year as fiscal deficit came down to 0.7% of GDP as compared to 1.4% for the same quarter last year. Some ideas were also discussed on readjustment of regulatory duties on various import...