ISLAMABAD: Pakistan may remain in the clutches of the IMF even after 2010, as the Finance Advisor, Dr Hafeez Sheikh, Wednesday hinted at a follow-up program with the Fund to pay back its $11.3 billion loan.
Dr Hafeez Sheikh was addressing a press conference, the first such interaction with the media after assuming his responsibilities in March. Sheikh said that the other option to return the borrowed money was to increase government inflows, which was “looking impossible in a short-term.” “It is not unusual to go to IMF for a follow-up program to pay back money”, argued Dr Sheikh, adding “I am not saying I am negotiating with the Fund but the IMF can be a source of funds”.
Pakistan entered into an agreement with the IMF on November 24, 2008 aimed at securing $ 7.6 billion dollars relatively expensive loan to avoid default and come out of international isolation. It was a time when countries like Saudi Arabia and China advised Pakistan to take shelter under the IMF umbrella. Later on, due to less than committed inflows from the Friends of Democratic Pakistan, the Fund increased its funding to $11.3 billion dollars.
The ongoing programme will end on December 31, 2010 and Pakistan will start paying back the borrowed money from 2012. So far, Islamabad has borrowed $6.4 billion dollars. The adviser’s admission that the economy was not in a position to pay back the loans reflected that despite being in the IMF programme, the economic managers could not resolve structural problems like not realizing the country’s tax potential. Dr Hafeez Sheikh said that the VAT levy was the IMF’s condition.
“The government has given its commitment and the leadership is affirmed”. It is both in the interest of the centre and the Sindh government to implement VAT from the next fiscal year, he added. Dr Sheikh said that next budget would have VAT related measures. Secretary Finance, Salman Siddiqui, said that there was a trust deficit between the centre and the provincial government. Dr Hafeez Sheikh said that power tariff would be raised by 6 per cent but he did not give any date in this regard. “Who would pick up Rs8 billion additional cost per month in case the government decides against increasing power tariff,” he asked.
Dr Hafeez Sheikh also hinted at a “significant increase” in the salaries of the government employees in the forthcoming budget. Dr Sheikh said that before embarking upon a higher growth trajectory, the country has to overcome five main challenges. Better economic management can not be assured without increasing domestic resources. “Defense, debt and civil administration are eating up the resources and we have to borrow to supplement the basic needs”, he added.
The second biggest challenge was how to attract foreign investment in those areas where the government was unable to invest, he said, the other key challenges were protecting the poorest while doing away with the subsidies and restructuring of public sector enterprises, which were eating up the public resources. “Pakistan Steel Mills’ monthly losses are Rs one billion and it is operating at 26 per cent of its capacity”. Dr Hafeez Sheikh’s views were also shared by the Country Manager of the World Bank. John Wall on Wednesday said that in order to follow a path of higher growth, the government would have to increase revenue, abolish subsidies, restructure public sector enterprises and attract foreign investment in badly-needed sectors like railway and roads.
He strongly advocated cutting down the size of public sector development programme. “Pakistan’s throw forward has gone beyond Rs three trillion, which is sheer wastage of resources”, he added. He said the government should not initiate new development schemes for at least five years and aim at early completion of ongoing projects.
Published in the Express Tribune, May 13th, 2010.