“I haven’t shown any flexibility. I’m trying to use my skills to negotiate a programme which is in the best interest of the country,” says Finance Minister Ishaq Dar. PHOTO: Zafar Aslam/Express
Both sides have so far failed to reach consensus on the terms of the bailout package, which is desperately needed by the government to cover upcoming loan repayments.
While the IMF is insisting on a prior set of actions by Pakistan to qualify for the new programme, the government seems intent on negotiating hard for favourable terms.
“I haven’t shown any flexibility. I’m trying to use my skills to negotiate a programme which is in the best interest of the country,” Finance Minister Ishaq Dar said while announcing a 48-hour extension in the stay of the IMF mission.
In Monday’s talks, the IMF has given a draft of Letter of Intent (LoI), carrying a set of actions that the country needs to take to qualify for the new programme, according to sources. The IMF wants Pakistan to meet these conditions in the next one and half month before it takes Islamabad’s request to its Executive Board for approval.
Pakistan is hoping to get up to 350% of its quota, or about $5.3 billion, in fresh loans from the IMF under the latest programme.
Clarifying the government’s position, Dar said Pakistan has not given the LOI to the IMF because further discussions are required before reaching an agreement. He added that the government will not levy more taxes as demanded by the Fund. However, he added that the government has agreed to slash power subsidies and increase electricity tariffs.
“As a member of the IMF it is our right to take loans from the Fund in difficult times and we are not apologetic”, said Dar while responding questions about the harsh conditions being imposed by the IMF. “I need six months to turn around the economy but my problem is that the country has to return a substantial amount to the IMF soon”, said Dar.
In this fiscal year, Pakistan has to return a $3.2 billion loan to the IMF in addition to over $3 billion to other international lenders. But with reserves floating at the $6 billion mark, the finance minister may need to explore other options if the talks with the IMF fail.
Rana Assad Amin, spokesperson for the finance ministry said Monday’s discussions mainly focused on the energy sector reform and the proposed fiscal adjustment of Rs655 billion or 2.5% of GDP, with the IMF being skeptical about the government’s ability to achieve such consolidation.
IMF demands
The IMF has set about half a dozen prior actions for Pakistan to qualify for the loan, sources told The Express Tribune.
These include levying more taxes, as the Fund was not satisfied with the measures taken to reach Rs2.475 trillion tax target of the new fiscal year.
Sources added that the baseline for next year’s revenue target was Rs1.96 trillion but the FBR could collect only Rs1.92 trillion. The IMF was asking Pakistan to levy more taxes to cover at least this gap.
Additionally, the IMF is seeking a two-thirds increase in electricity tariffs. While Dar has hinted at increasing tariffs, the issue seems to be its continuation until the government fully recovers the cost of electricity generation.
Furthermore, the Fund is also seeking to limit money market operations and is asking Pakistan to stop throwing dollars in the market to defend the rupee against the US currency.
Instead it wants the government to buy dollars from the market to strengthen the reserves. They added this will result into depreciation of rupee at least Rs5 to Rs6 against the US dollar. The rupee’s value is estimated over Rs106 a dollar.
Other IMF demands include making bank borrowing expensive and increasing the discount rate, to cover inflationary trends as a result of increased power tariffs.
Published in The Express Tribune, July 2nd, 2013.
COMMENTS (37)
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@Mr.Dar-ling:
"Dar is an accountant not an economist, he doesn’t understand what IMF is saying"
True, but it doesn't matter. He does know how to "cook" the books.
@Omar Farooq: In fact it is, why do every exporter country (like China and Japan, for example) is pushing for undervalued (depreciated) currencies? it is because depreciation of a currency acts as a counterbalance to external account deficit. It restricts imports by making them expensive in their Rupee equivalent and encourages the exports. The famous buzz word "currency wars" these days is exactly the same policy.
@A2Z: The increased terrif will be applicable to 300+ units consumers (which roughly constitute about 20% of the total users) and these users are by no mean poor. Ideally thought I thought 100 units should be the maximum to be subsidize.
@abdussamad:
The reason Pakistan is defending the rupees is to help the elite move their money abroad at a higher value of the Pak rupee. Devaluation means they will get less dollars to stash in tax havens abroad.
@Omar Farooq: Yes it is. The rupee is overvalued and needs to be devalued. The SBP has been doing something very foolish. It has been spending our precious forex reserves defending the rupee instead of letting it fall. The IMF doesn't want to give Pakistan dollars just so that the SBP throws it all away.
Besides all the regional currencies have depreciated in recent times. The INR for example has hit 60. We too have to devalue to keep our exports competitive.
Negotiation takes flexibility. Pakistan takes the position that it's too important for the World to let it go down the drain so it doesn't have to do anything other than cash checks funded by the rest of the World. Akin to pointing a gun at your own head and trying to blackmail the World. Risky strategy especially when much of the World thinks your more trouble than your worth.
Dar is an accountant not an economist, he doesn't understand what IMF is saying
The IMF , the World Bank and other lending agencies , including governments of UK/USA et al, should insist on Pakistan to implement direct taxation on the sectors eternally protected by the vested interests of the feudal/ industrialist ruling clique regardless of a military or so called democratic government. Income from Agriculture, Real Estate,Capital gains at Stock Markets are some examples of untaxed areas.
The cycle of taking massive loans to retire mountainous debts born of corruption must stop. It is the people of Pakistan whose future is being repeatedly mortgaged by plunderers one after the other.
The masses are being crushed by indirect taxation of mounting GST, withholding tax , a hike in fuel/gas prices/ utilities charges which have a knock on effect. (Nowhere in the region a prepaid telphone card is taxed at 42 % of the face value )
The UK Parliament had rightly taken a position recently that no aid should go to Pakistan where attleast 70 percent of the parliamentarians do not pay taxes at all. The IMF begging bowl should break for the good of the country which is not poor but is only poorly governed.
Mr. Dar is telling the nation that he would not take any step against the interest of Pakistan. IMF is asking to broaden the tax net and bring all the feudal lords, industrialists and real estate tycoon to include in tax net and start paying taxes. Mr. Dar is opposing that and is not ready to tax the individuals/ business who are making billions of rupees and are not ready to share their burden of responsibility by paying back to state in taxes. I think he should understand that average Pakistanis understand that who's interest he is watching and it is for sure not the interest of state of Pakistan. We must go for broadening of tax net as being told by the IMF otherwise we will remain in this vicious circle of begging for more from these lending institutions. I hope Mr. Dar remembers that beggars are not the choosers. So he should stop this crap and listen to the good advice of IMF in the interest of Pakistan.
. . . . and Musharraf was a bad guy who got rid of IMF.
@YP Mississauga:
For the record GOP in the case of Pakistan also stands for the original ' Grand Old Party ' the muk muka parties ( PPP & PML N ) under their infamous COD ( Cash on Delivery ) plundering the country in turns one after the other . All in the name of Demoncracy.
Let the voters lay back and enjoy
@Gp65:
Whatever happened to the Harmain /Shareefain life line of USD 5 Billion floated as a politically driven lollipop for the masses ?
Ironically the only time we broke the IMF Begging bowl was under Musharraf. He also encouraged a Resolution in the Parliament that henceforth no loans would be taken in future without the mandatory approval of the House which would scrutinise the terms and conditionsin depth before allowing any liabilities to be incurred
What happened to that Resolution ??????????????
Default, its Riskless.
send the IMF team back home, let us learn to live within our means
A2Z good comment. Well done there.
@Citizen: Has the economy collapsed yet? I've been hearing this for the last 25 years! Pakistan is probably perpetually on the brink of default. Let 'em take the loans, let 'em not return the loans. Who cares? PTI, where art thou?
Tomorrows Headlines Today ++++++++++++++++++++++++ Paksitan rejects IMF. PMLN announces Victory celebrations.
I am a Senior Citizen of Pakistan filing regular Annual Tax Return. I have no pension nor retirement fund, or any senior citizen monetary plan from the Government of Pakistan. I am to file Annual Tax Return to declare as well as to pay added Tax as well as to fund retirement of Pakistan Government Employee, Military Pension and the Bureaucrat high living standards. Its Dreadful to be a Senior Citizen as a Annual Tax Return Filer for more than Forty Years. Tax Return means the State of Pakistan will give a Return in My Senior Years. What a Country..!!!!
The finance minister is fooling the public by acting as if he is safegaurding public interest, the truth is, him and his team have no clue about the details of the economy of Pakistan, and this is exactly what the IMF team is saying, that the Pakistani side is simply incompetent. They do not understand even the terminology being used by IMF. . This is simply embarassing.
IMF is concerned about the competence of the negotiating team, and its lack of understanding. And this is hardly surprising, PMLN simply does not have competent people in its ranks and will sooner or later, do a repeat of what PPP did.
Dar: Beggars can be choosers! +++++++++++++++++++++ IMF in distress.
@overseaspakistani, yea you think so that you can get more PKR money in return. Shame on you for thinking about yourself only. Devaluation of rupee is not in interest of Pakistan economy.
“I haven’t shown any flexibility. I’m trying to use my skills to negotiate a programme which is in the best interest of the country,” Finance Minister Ishaq Dar said while announcing a 48-hour extension in the stay of the IMF mission.
I, I, & I always. Never use "We".
Reminds me of Musharraf who always used "I" and never "We".
This is a very troubling news for overseas Pakistani like me. I think finance minister should listen to IMF and agree to a devaluation of rupee. We cannot send any remittances in rupee till then sorry.
GOP has to agree to terms of IMF terms. Poor people of Pakistan should get ready for mini budget as IMF wants taxes imposed before they grant the loan. Mr. Dar should not fool the people of Pakistan with sweet talk.
"“As a member of the IMF it is our right to take loans from the Fund in difficult times and we are not apologetic"
Members may have right request loans but it is not obligatory on the IMF donors to approve the request. I am not sure where some of the Pakistani leaders are getting their head tuned!
They think they have the right to "take" loans from IMF, they have the right to get nuclear technology irrespective of the proliferation record, they have the right to demand and get free aid from other nations every time there is a disaster, they have a right to get free money for power plants, they want free fighter jets, drones, tanks, ships, radar etc to fight terrorists, they demand money to educate Pakistanis... the list is long. It looks like these "leaders" think that the rest of the world exists to serve Pakistan!
Pakistan government has to seriously look at the poor performance of the FBR. The have let down the nation.FBR needs to be totally reformed and honest officers should be posted at key positions The tax collection being reflected at Rs 1928 billion includes about Rs 60 billion of withheld refunds of past 3 months, advances taken from large banks,companies of Rs 20 billion.
Borrowing is not bad per se, but borrowing to re-pay old loans is putting the nation into a vicious cycle of debt trap Why does the government not sincere efforts to tax the un-taxed wealth of Pakistanis in foreign banks/countries?.Have them bring back the money with some token tax and grant them one time immunity.The nation needs the money
Pakistan should avoid the loan from IMF and live whithin its own means. It will be difficult and very painful but it can be done. First step is increase the TAX base
"One should learn to be humble when asking for loans, not show arrogance ! It may please the local uneducated voters, but certainly will not please the lenders !" The arrogance is directed towards the domestic audience. Rest assured that the minister speaks in a very different tone when he gets inside the room with the IMF team.
Does this person has all the qualification to be a finance minister ? Pakistan needs to tax it's rich. This is what the donor countries are asking, so that it generates revenue for the federal budget.
He (Dar) added that the government will not levy more taxes (on the Super Rich Pakistani Elites/agricultural land owners that probably PAY NO TAXES NOW) as demanded by the Fund!!!! Some things never change in Pakistan, with the basic rule of thumb for the "so called" government apparently being that TAXES ARE JUST FOR LITTLE PEOPLE!!!
@A2Z: The IMF has requested the increase of both types of tax, however I agree with you in the case of tax bases. The Ministry of Finance and respective tax officials need to take their jobs seriously. We can no longer afford to be a corrupt nation. The economy WILL collapse if the current state of affairs continue without any change.
“As a member of the IMF it is our right to take loans from the Fund in difficult times and we are not apologetic”, said Dar while responding questions about the harsh conditions being imposed by the IMF. “I need six months to turn around the economy but my problem is that the country has to return a substantial amount to the IMF soon”, said Dar.
Asking for 350% of quota, is nobody's god given right, especially with track record of non compliance of terms, as Pakistan has historically ! Mr Dar is either an magician of greatest talent or he seriously is very inept in his position, if he believes that he can turn the economy around in six months, let alone six years ! One should learn to be humble when asking for loans, not show arrogance ! It may please the local uneducated voters, but certainly will not please the lenders ! Has Pakistan got Plan B, if these talks fail ? I think not !
The government is ready to increase electricity tariffs which will increase burden for poor families. The taxes has already been increased in the budget. Every other day we are reading that IMF is asking for more tax but we want to know which tax. Are they asking to increase the current taxes or broaden the tax base?
If IMF is asking to increase the income tax, GST etc then government should not increase it. But if they are asking to increasing the tax base then government should work on it. From the budget it is clear that government has increased the taxes without any hesitation which are casting huge impact on lower and middle class. But they didn't touch the taxes for rich. I think IMF is also asking to bring the rich and influential class into the tax net but government is trying its best to save its fellow class.