IMF advises Pakistan to open up economy

International Monetary Fund also proposes spending of Rs6.2tr on sustainable development goals in 10 years

ISLAMABAD: The International Monetary Fund (IMF) has proposed that Pakistan should open up its economy to the rest of the world by lowering restrictions on imports and signing new free trade agreements (FTAs) - recommendations that do not fall under the core ambit of the $6-billion loan programme.

The IMF also proposed that Pakistan should spend Rs6.2 trillion on sustainable development goals (SDGs) over the next 10 years which, according to Member National Assembly Ali Pervez, was an attempt to create room for additional revenue measures.

This comes to nearly Rs620 billion per year, which is even higher than the total federal development spending in the first year of the Pakistan Tehreek-e-Insaf (PTI) government.

The IMF made these recommendations to a joint sitting of standing committees on finance of the National Assembly and Senate. The joint meeting was co-chaired by Senator Farooq H Naek and MNA Faizullah Kamoka. The IMF’s deputy director of Middle East and Central Asia led the fund’s team.

Usually, the mission chief to Pakistan represents the IMF delegation but this time the IMF has raised the level to the deputy director, who joined the ongoing talks early this week.

“The IMF has recommended that Pakistan should open up its economy to the rest of the world, which is currently much closed,” said Faizullah, while talking to mediapersons after the joint sitting. He said the IMF suggested signing new FTAs with the rest of the world to enhance exports.

It is for the first time that the IMF has publicly talked about signing FTAs - an issue that remains controversial in Pakistan due to adverse implications of the China-Pakistan FTA phase-I for the country’s industrial base. Owing to low scale of the economy and high cost, Pakistani industrialists lost market to the influx of cheaper Chinese imported goods.

Yet the Ministry of Commerce signed phase-II of the FTA with China with effect from January that lowered tariffs to zero on three-fourths of the total tariff lines.

The IMF said Pakistan was exporting only 6% of its exports to China while the ratio was 16% with the United States, said PTI MNA and standing committee member Dr Ramesh Kumar.

Pakistan does not have an FTA with the US. Signing the FTA with Pakistan at this stage was not on the US agenda, said Michael Kugleman, Deputy Director Asia Programme of the influential Woodrow Wilson Centre while speaking at the Express News programme, The Review, last Saturday.

Faizullah said the IMF delegation was of the view that import compression was also hurting exports. The IMF advised that Pakistan should reduce import tariffs and remove exchange restrictions to open up the economy, he added.

The IMF should not talk about issues that were not part of its programme, said Dr Waqar Masood Khan, former finance secretary, who negotiated two out of the last three IMF programmes.

Khan said it was the IMF that first distorted the trade regime by allowing increase in maximum import tariffs to 27% to meet its targets. Faizullah said the IMF also gave a presentation with focus on five SDGs which included education, health, provision of electricity, roads and water and sanitation.

The IMF said there was a need to create fiscal space for spending on the SDGs. It said Pakistan needs to spend Rs6.196 trillion on the SDGs from 2020 to 2030, said Kumar.

Poverty reduction is not high on the IMF agenda and it has also not objected to a phenomenal increase in interest payments, which is sheer transfer of resources from the poor to the rich, as the poor face food inflation of 20% in urban and 25% in rural areas, said Dr Khan while talking to The Express Tribune. The credit squeeze was hurting SMEs and growth was even less than the projected 2.4%, he said.

Addressing common man problems was not high on the IMF agenda, said Senator Sherry Rehman of the PPP after attending the IMF meeting. She said it was the responsibility of the government to take care of the people and also ensure economic stabilisation. “The government needs to formulate a joint economic plan in consultation with the opposition but the government is not ready to sit with the opposition,” said Rehman.

She also said Pakistan’s problem was not allocation for the SDGs rather the issue was better utilisation of the funds.