Accord with IMF at last

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AT long last, the certainty about the fate of the programme with the International Monetary Fund (IMF) has ended with a staff level agreement with the Fund that will allow revival of the six-billion-dollar extended fund facility programme to Pakistan.

In a statement released by the international money lender Monday, it said, “The agreement is subject to approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms.”

Completion of the review would make available SDR 750 million (about US$1,059 million), bringing total disbursements under the EFF to about US$3,027 million and helping unlock significant funding from bilateral and multilateral partners.

The IMF provided $1.4 billion to Pakistan to help stabilize the economy during Covid-19 with the two sides agreeing to put on hold the EFF and revise it after the pandemic was over.

However, its revival proved a hard task because of the rigid approach of the Fund in the face of insistence of Pakistan to provide more space to the country because of the impact of the Coronavirus on the economy and financial position of the country as well as adverse implications of some of the conditions for the common man.

As the lender was not in a mood to oblige and some powerful countries too were using the IMF tool to squeeze the country politically, the Government finally had to accept almost all the conditions of the IMF and the latest understanding makes it abundantly clear that the present trend of inflation and high taxation would continue in the future as well, meaning thereby that there would be no end to the miseries of the people.

On the basis of what the Pakistan Government has already implemented under pressure from the IMF, the Fund recognized that “despite a difficult environment”, Pakistan continues to make progress on implementing the Extended Fund Facility programme, adding that all quantitative performance criteria for end-June were met with wide margins, except for that on the primary budget deficit.

The statement also made it clear that all the recent difficult decisions were taken by the Government under the influence of the IMF.

The Fund spoke high of the Federal Board of Revenue (FBR) for ‘strong tax collection’, depreciation pressure on the exchange rate—mainly reflecting the compound effects of the stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices; and steps by the State Bank of Pakistan to reverse the accommodative monetary policy stance.

It also hints that the Government plans to introduce a package of fiscal measures targeting a small reduction of the primary deficit with respect to last fiscal year based on: (i) high-quality revenue measures to make the tax system simpler and fairer (including through the adoption of reforms to the GST system); and (ii) prudent spending restraint, while fully protecting social spending.

All this would evidently lead to more price-hike and that too at a time when people were crying hard under the burden of inflation.

The Government has its own constraints in succumbing to the pressure of the IMF as it wanted revival of the programme at all costs to send a positive message to other donors but politically it is suicidal and increased reliance and dictates of the Fund transmit an impression the country is no more in a position to follow policies that suit its national interests or take care of the needs of the people.

While the condition for broadening tax base is welcome, history tells us that the burden always fell on the existing tax-payers and the common man and not on those who have been enjoying perks and privileges as well as a number of exemptions and relief packages since the inception of the country.

Similarly, the condition of ‘timely alignment of tariffs’ with cost recovery levels invariably means the prices of electricity and gas would further go up, compounding difficulties of the people and hiking the cost of doing business, which is already high.

It is intriguing that the IMF has acknowledged Pakistan efforts in improving anti-money laundering and combating financing of terrorism framework but the Financial Action Task Force (FATF) is in no mood to take Pakistan off the so-called grey list and instead comes out with more conditions on the occasion of every subsequent review.

This confirms the belief Pakistan is victim of utter discrimination by international lenders and some powerful countries.

All this should lead to a major review of the country’s policies and a sharp focus on initiatives like CPEC that are genuinely aimed at helping Pakistan stand on its own feet economically.

 

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