As hopes of a revival of the suspended IMF bailout programme dim following withdrawal of US support, economic managers in the capital question when, not if, a second, possibly more stringent bailout programme should be sought from the lender.
Meanwhile, confusion persists over the timing and purpose of the IMF team’s upcoming visit to Islamabad.
Authorities have been unable to work out the modalities of the team’s upcoming visit, given the ‘miserable fiscal performance’ during the last financial year, said finance ministry sources.
Poor performance, no support
Due to the government’s failure in meeting the budget deficit and revenue targets and inability to reform the energy sector, there are extremely slim chances that the IMF would restore the suspended programme and send a review mission, a prerequisite to receiving the next $1.7 billion loan tranche, sources said.
During the last fiscal year, the overall budget deficit – gap between income and spending – stood at 6.5 per cent of GDP, or Rs1,174 billion, against a revised target of 4.7 per cent of GDP.
Tax collection, meanwhile, stood at Rs1,550 billion against a thrice-revised target of Rs1,588 billion.
Unlike previously, Pakistan does not enjoy support of the United States this time around when all economic indicators, except the current account, have deteriorated.
Sources said the US had informed Islamabad in April that “it needs to satisfy the IMF.” The message was delivered by the then-senior economic adviser to President Obama, David Lipton, who has recently been appointed first deputy managing director of the IMF.
Status and timing of next mission
The status and the timing of the next IMF mission are also contentious.
Key policymakers do not want a mission without having a mandate of ‘fifth economic review.’ The last review was held in May 2010 following which, the programme was suspended.
Sources say there are finance ministry officials lobbying for an IMF visit, irrespective of its mandate, but such an assessment mission in March last year made things rather difficult for Pakistan.
Besides, whether the mission should come before expiry of the suspended programme on September 30 is also a divisive issue.
IMF’s country representative Paul Ross is scheduled to hold a meeting with Finance Minster Dr Abdul Hafeez Shaikh on Monday.
Sources said there are expectations that the fate of the upcoming visit would be decided by the end of next week. They added that hopes of revival of the suspended programme have been quashed.
Second programme
There are also divergent views on when to formally enter into negotiations for a second IMF bailout programme.
Those who support seeking a second programme after the next general elections say that Pakistan needs to consolidate its position before doing so.
They foresee a tough second programme with pre-conditions including sale of loss-making entities and downsizing of employees in state-owned enterprises.
They argue that a new political set-up should hold talks with the lender as there may be issues of credibility and ownership with the present political setup negotiating a new loan.
There are also concerns of sustainability of government’s revenue generation measures.
“Most of the actions taken by the government had a one-off impact, like the flood tax,” said a source. “What the IMF now seeks is sustainable adjustments that would not only ensure economic sustainability but also ensure timely return of the fund’s loan.”
Policymakers need to have ‘vulnerability analyses’ before requesting for another mission visit or going for a second programme, sources said.
Meanwhile, temporary stability in the external financial position provides breathing space to poli-cymakers before holding talks with the IMF for a second programme, sources said.
The current account surplus, a relatively stable rupee against the dollar and over $18 billion in reserves will help keep the pressure off even if Pakistan delays talks for a second programme, they added.
Published in The Express Tribune, July 31st, 2011.
COMMENTS (15)
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billi baba: On the same token what goes on between Afganistan and India is not your problem either. Why is Pakistan concerned about it. It is the same reason my friend. We are concerned about what happens in our neighbourhood. With "nothing going on", we can grow well. It is called smart working, isnt it. This is simply because you cant see what is going on. By the way, check the "Recommend"s on my suggestion. I am sure that you will blame it on Indians too.
You wanted a life without America --- well here it comes -- hope you enjoy it!
@vasan: Supposedly u guys re progressing by leaps but judging by the trolling form 80% Indians on ET, it seems you people have nothing going on. What transpires between Us & China is is none of your bees wax!
@Ashok:
Well, I would not want to disappoint you. Here I am.
The reserves are accurate figures. They are difficult to fudge. I agree with the author that it gives us breathing space but it should not allow us to become complacent. That is always the risk when reserves are high.
I haven't been snooping around but don't be surprised if the IMF comes for the routine annual health-check -- an Article IV Consultation and nothing else. Just my gut feeling.
If there is a program, I would imagine and would certainly like to see PRIOR ACTIONS -- actions to be taken BEFORE the program goes to the Executive Board for discussion and approval. I am sure Executive Directors are weary of our broken promises and back-tracking and would want to see measures taken up-front.
To those of you asking why we need more money, as I have said so before we do not have a "balance of payments" need strictly speaking at present. But Pakistan is an open and vulnerable economy and a small shock can throw us off-track. Let us hope there is a "normal" monsoon and no more flooding and that world prices of items of interest to us start to ease. If not with export prices starting to fall the external terms of trade will move against us.
Finally, I share concerns about the cut in the SBP policy rate. If this is playing to the gallery up north it may be good politics but not good economics. The battle against inflation has not been won yet. The SBP will argue that with inflation set to fall to about 12%, a policy rate of 14% means that you have a 2% REAL interest rate. That is hardly overly-tight.
No Paul Volker in the SBP, thats for sure.
@ H.A. Khan I agree with your reflections. Where is teh $ 18.5 Billion
The government should focus on good governance and better fiscal policy. Just cannot understand why did State bank reduce interest rates in this high inflation environment in the country.
Lets appoint Ms Hina as Minister of Finance ...her charm will no doubt melt the IMF!
Appears, some of you wanting US to leave got your wish. $18.5 billion reserves, no assistance needed (something doesn't compute).
Nothing to wrroy, Pakistan is the most indispensible country to the world.
PPP and PML-N always leave Pakistan in difficult situations where army need to settle things and bring country back on track. The quack democracy is hurting and bleeding Pakistan.
Please explain to me if you have $ 18.5 billion in reserves, why would you want to borrow $ 1.7 billion more at high interest rate?. Unless off course what is being claimed as reserves is mere book keeping entries...
And why would IMF support Pakistan: with second highest rate of inflation,State Bank reduces interest rates; FBR fudges (mis-reports ) tax collection data; State Bank Governor, Chief Economist of Planning Commission have resigned and now The Chairman and President of largest Bank ie NBP have tendered their resignation; we continue to provide power subsidies ; corruption is the order of the day; expenses of the government continue to rise with a large cabinet; and we have very poor governance.
Why dont u ask your all weather friend China to bail u out ??
Beg, beg and beg. Borrow, borrow and borrow. IMF, IMF and IMF. Only from the WB,IMF and ADB and strengthen the hands of the sons of Zion. Almost sixty-four years and still on your knees begging.
Beware, vultures are here.
With over $18.5 Billion in reserves ( I wonder where this money is), why is the MoF chasing $ 1.5 Billion loan from IMF?.
Do you think IMF will give loan to Pakistan which with Asia's second highest inflation rate, the State Bank reduces is lending rates????
What in theory needs to be done is cut down on expenses (which govt.is not prepared to do), increase tax revenues( people-politicians are not prepared to pay).
So let us learn to live in country with run away inflation, power shortages, corruption till people on the street rise up and we have a civil strife
Waiting for comments by Meekal Ahmed. On a different note, I see a lot more 'Made in Pakistan' labels on clothes these days here in the US. Seems like the US is trying to assist Pakistan with trade rather than purely aid. This should be good for small businesses in Pakistan, which in turn will hopefully spur employment in that country.