The International Monetary Fund (IMF) has cleared the air saying that any new short-term loan programme should not be signed with Pakistan, as reforms envisaged in the last previous programme could not be implemented.
The IMF expressed these views in the post-evaluation draft report of the $11.3 billion bailout programme that culminated prematurely after Pakistan failed to implement the much-needed reforms, said officials who have read the document.
Pakistani authorities were expected to head to the IMF in case of a looming default, says a source.
The draft report is currently lying on the desk of the finance minister and awaiting his review. Due to Islamabad’s inability to honour its commitments, the Washington-based lending agency withheld the last two tranches amounting to $3.4 billion. Signed in October 2008 for a period of 25 months, Pakistan received its last tranche under the stand-by programme in May 2010. A-nine month extension in the programme also could not convince Pakistan to implement the crucial reforms.
The IMF’s comments came at a time when Pakistan’s economy is weakening and the country’s foreign currency reserves have come under extreme pressure due to much higher than the anticipated trade deficit, a measure of how much imports exceed exports.
With doors closing on a short-term programme, in case of a default on international payments, the IMF would stress on signing a long duration programme.
The last programme was seen as an easy access to money where the lending institution gave $3.1 billion upfront, said Meekal Ahmad, a former IMF official, while giving a lecture on Pak-IMF relations last month. He had said then that in future the IMF would not give funds upfront and would rather ask Islamabad to take prior actions for qualifying for a new programme.
When contacted finance ministry officials refused to comment on the report arguing that the ministry has not yet compiled its observations and are waiting for the Finance Minister Abdul Hafeez Shaikh to return from holidays.
Sources said the IMF has outlined three main reasons for failure of the last programme. It has said that Pakistan could not honour its commitments due to lack of political support and deterioration in the security situation that put extra burden on finances. It further said the global economic crisis also adversely affected the programme.
The biggest failure of the programme was the non-implementation of the reformed General Sales Tax as the government could not convince the Parliament to approve the RGST Bill.
While acknowledging success in the first-year of implementation, the IMF also termed the reforms agenda “ambitious”, said the source. However, the Fund has not shared any responsibility for premature culmination of the programme. It argued in the report that the programme was designed by the Pakistani government and the IMF only supported the agenda of what is dubbed as home-grown reforms agenda by former Finance Minister Shaukat Tarin.
The sources said that IMF further stated that at the time of signing the bailout programme, Pakistan had debt sustainability problems. Even then the IMF gave loans in the hope that the Pakistan authorities will increase tax-to-GDP ratio, the sources added while quoting the draft report.
Ironically, instead of any increase, the country’s tax-to-GDP ratio has further deteriorated.
While defending its decision to give budgetary support to Pakistan, the IMF said other world donors got complacent, which adversely affected foreign inflows.
After 2010’s floods, the IMF had given $450 million in budgetary support as an exception. The Fund primarily lends for strengthening balance of payment position.
Published in The Express Tribune, July 14th, 2012.
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