Corruption perception hurting Pakistan: IMF chief

Christine Lagarde urges policymakers to seize the moment

ISLAMABAD: The International Monetary Fund president said on Monday that Pakistan’s public debt remained high and the perception of corruption was hurting its prospects to grow, recommending a three-pronged strategy to overcome these challenges.

“Despite significant fiscal consolidation, the public debt of Pakistan remains high at about Rs19 trillion or 65% of GDP,” Christine Lagarde said while speaking at a seminar on ‘Pakistan and Emerging Markets in the World Economy’, as a keynote speaker.



This was a first visit by the head of the global lender to Pakistan in 10 years and Lagarde appeared to be striking a balance between the achievements that Pakistan has made under the IMF programme and the actions needed to seize a ‘moment of opportunity’.

She also met Prime Minister Nawaz Sharif and congratulated him on the completion of the $6.1 billion three-year IMF bailout package that helped the country stave off possible default in 2013.

While urging policymakers to make economy more resilient, Lagarde said that at current debt level, the interest bill was larger than even Pakistan’s entire development budget.

Responding to a question, she ruled out debt restructuring and said: “I wish I could, but it’s not IMF’s money.” The money belonged to the international community, she added.

Asked whether Pakistan would need another IMF programme two years down the line, she said, “If so, so be it” but added that it was never easy to deliver on the IMF programme.

Lagarde said to place debt towards the downward trajectory, actions are needed on both the revenue and expenditure sides. On the revenue side, she urged Pakistan to broaden its tax base.

“Pakistan today only collects little more than half of the estimated revenues and this requires serious efforts to bring more people in the tax net,” she said. The IMF chief said Pakistan needs to reduce losses incurred by public sector enterprises.

Lagarde cited quotes of the Quaid-i-Azam and Allam Iqbal, urging the rulers and the citizens to draw inspiration from the lives of the two great leaders of the nation.

“Pakistan ranks 117 out of 168 countries in perceived corruption,” she said while referring to the Corruption Perceptions Index. She said although direct social and economic losses are difficult to measure, even a perception of corruption deters private investment and impedes efforts aimed at promoting sustainable and inclusive growth.

“Increasing transparency, making people accountable and removing red tape can help” address the issue of perception of corruption, she advised.



She said there were three key priorities for Pakistan to capture its moment of opportunity -- reinforce economic resilience, raise growth rate and make the growth more inclusive.

Pakistan can raise growth by promoting private investment, strengthening exports and raising productivity, said the IMF chief. Private investment and exports are only 10% of the economy.

She said increasing access to education was crucial, especially when youth in Pakistan comprised about 60% of the population, advocating equal opportunities to access jobs and finances for women.

“Today, economy is on much stronger footing, (but) of course everything is not perfect,” she said while referring to criticism against the government’s economic policies. Public finances have improved considerably, external reserves have been rebuilt and the economic growth has been gradually strengthening, she added.

She said this is a moment of opportunity for Pakistan amid a shift taking place in the global economy. She said Pakistan can embark on the next generation of economic reforms to generate higher and more inclusive growth.

The global landscape is changing from advanced economies to emerging markets and emerging economies are driving global growth, she added. “Every year two million young people are entering the job market in Pakistan and this gives a tremendous opportunity for growth.”



She said with global growth more fragile and slow Pakistan will have to rely on domestic sources and transform policies in order to respond to the young people entering the job market.

She said the Chinese economy was rebalancing and this transition will have ripple effects for countries, including Pakistan.

China is Pakistan’s third largest trading partner and slowing down in the Chinese economy means less exports from Pakistan, less FDI and less joint ventures. But this can be good news as Pakistan can vie for industries dying in China, she added.

“Pakistan will need to retool its economy and train people in order to take advantage of the situation. Pakistan can also take advantage from low oil and global commodity prices.”

Published in The Express Tribune, October 25^th, 2016.