WB urges Pakistan to ‘stay course’ on reforms

Calls for accelerating pace of power sector reforms, critical for achieving higher economic growth

ISLAMABAD:

The World Bank (WB) on Sunday publicly urged Pakistan to “stay the course on the structural reforms” after telling in private that any future budget support loans will be conditioned to revival of the International Monetary Fund (IMF) programme.

The WB local office released a detailed statement at the conclusion of the week-long visit of its vice president for South Asia, Hartwig Schafer. He was on a reconnaissance mission to gauge whether Pakistan is still committed to put the economy on a sustainable path.

“Mr Schafer emphasized the importance of staying the course on the structural reform programme launched by the government, particularly in the power sector and with respect to fiscal sustainability,” said the WB statement.

It said the vice president gave this message during his meetings with Minister for Finance Shaukat Tarin, Minister for Economic Affairs Omar Ayub Khan and Minister for Energy Hammad Azhar.

The WB’s words of caution came amid an ongoing dissension in the Ministry of Finance on the issue of whether to stay on the course of fiscal prudence or follow an irrational path in pursuit of the government’s bid to enter the next general elections on the back of a Rs1.6 trillion package.

“We urge the government to accelerate the pace of power sector reforms as these are critical for Pakistan to achieve higher economic growth and resilient recovery from the Covid-19 pandemic,” said Hartwig Schafer.

Read Pakistan, World Bank discuss circular debt

The vice president further said: “The key issue for the power sector is to be on a financially viable footing to support the country’s green, resilient, and more inclusive development.”

The WB’s advice about power sector reforms came days after Special Assistant to the Prime Minister on Energy Tabish Gohar too showed his frustration with no reforms in the sector in a letter written to energy minister and sent to all top government functionaries.

Due to disagreement on the set of reforms in the energy and fiscal sectors, Pakistan and the IMF could not complete the 6th review of the programme in June.

The sources said Schafer plainly told the Pakistani authorities that any future budget support and balance of payments loans by the WB would be conditioned with the revival of the IMF programme.

Pakistan’s external sector may also now face troubles as its imports remain over $5 billion, which may now again cause ballooning of the current account deficit to double-digits.

The WB said the vice president’s visit was aimed at discussing “the country’s development priorities and how the bank can continue to support the government’s reform agenda”.

Mr Schafer was joined in his meetings by the Country Director for Pakistan Najy Benhassine, and the Pakistan Alternate Executive Director for the World Bank, Naveed Kamran Baloch.

The PTI government had committed to bring the circular debt to zero by December 2020 but it still remains over Rs2.3 trillion despite massively increasing the electricity prices.

Minister for Finance Shaukat Tarin had said a few weeks ago that the IMF was demanding increasing electricity prices by Rs4.95 per unit, which the government would not allow to happen.

The WB’s public statement suggests that Pakistan is drifting from the path of reforms and also indicates its frustration with the Pakistani authorities amid serious issues surfacing in the Q Block – the seat of the finance ministry.

The sources told The Express Tribune that the recently appointed secretary finance has informally requested the government to transfer him due to differences over the Kamyab Pakistan Programme.
After the secretary finance’s objections, the government has postponed the launching of the programme that was scheduled for today (Monday).

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Special Assistant to the PM on Finance Dr Waqar Masood Khan confirmed on Saturday in Express News programme The Review that launching of the Naya Pakistan Programme had been delayed.

When asked why the secretary finance had to ask to be relieved, Dr Waqar said when you hold consultations a decision is taken when you meet next time some changes are made.

And the finance minister did not have any hesitation to say to the prime minister that we are not ready to launch the programme and need time to settle the outstanding issues. But he did not directly answer the secretary’s request for transfer.

The WB said Schafer also met with Prime Minister Imran Khan to discuss these key reforms. The government’s ambitious plans for investing in human capital, social protection and job creation were also discussed.

“The bank offered its support to ensure that new initiatives like ‘Kamyab Pakistan’ benefit from international experience, global knowledge and are implemented in a targeted, impactful and fiscally sustainable way,” it added.

The government wanted to launch the Rs1.6 trillion Kamyab Pakistan Programme on Monday that involved Rs260 billion minimum subsidies. There are issues about the selection of banks and the service charges being paid to them.

According to the sources, the central bank and the finance ministry also have reservations over giving 100% guarantees to the banks against losses of the programme.

Initially, the idea was that the banks would give interest-free loans against their balance sheets but after their refusal the government decided to provide them money at Kibor plus 0.5% interest rate, they said.

The WB said Schafer’s meetings also focused on the importance of building fiscal resilience through harmonizing the General Sales Tax nationwide, establishing an integrated debt management office, and ensuring a sustainable macroeconomic framework that encourages private investment and growth.

The lender had delayed approval of the $400 million loan due to the federal and provincial governments inability to integrate their tax laws to reduce cost of doing business.