Pakistan should consider IMF deal after reforms in place: Sartaj Aziz

Published: May 24, 2013
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Sartaj Aziz, who has been advising Pakistan's incoming Prime Minister Nawaz Sharif, speaks during an interview. PHOTO: REUTERS

Sartaj Aziz, who has been advising Pakistan's incoming Prime Minister Nawaz Sharif, speaks during an interview. PHOTO: REUTERS

LAHORE: Pakistan’s new leadership expects first results of its planned steps to shore up its finances and ease a power crisis in two or three months and only then should decide whether and on what terms to seek an IMF bailout, senior policy adviser and former federal finance minister Sartaj Aziz said on Friday.

Most economists, lenders and rating agencies say that the nation’s finances have reached such a critical stage that a deal with the International Monetary Fund will be necessary and the sooner it comes the better.

But  Aziz, 84, who has been advising incoming Prime Minister Nawaz Sharif, and is expected to take over as his chief economic and foreign policy adviser when the new government is sworn in coming days, said a deal with the IMF now would be self-defeating.

“Right now, you can’t reach an agreement with the IMF because the kind of conditions they would impose on you would not allow you to grow,” said Aziz, who served as finance and foreign minister in Sharif’s two previous cabinets in the 1990s.

“But if our economic revival package starts working in two months, three months’ time, and it is clear that exports are picking up, our revenues are going up, then you need much less adjustment than indicated by the present situation.”

The Asian Development Bank, one of Pakistan’s major lenders, estimates it will need $6 billion to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF package suspended in 2011.

But Aziz said those needs may prove smaller if the economy responded to new policies.

“We may have to go to the IMF, but if we go with the revived economy then probably all we will need is a loan to cover the repayments,” he said.

Aziz said talks with the IMF were going on and did not rule out a decision sooner if a thorough review of state finances by the incoming government showed that the situation was more serious than thought.

Sharif, toppled by the military 14 years ago, swept back to power in a landmark May 11 election that marked the first transfer of power between civilian governments in Pakistan’s 66-year history, about half of which has been spent under military rule.

Nearly broke

That, combined with a strong voter turnout and a clear majority captured by Sharif’s Pakistan Muslim League-Nawaz (PML-N), raised hopes for economic revival and greater stability.

But he takes over a country that is almost broke, plagued by a Taliban insurgency and sectarian violence, crippling power cuts and a growing army of unemployed.

The nuclear-armed country of 180 million, the world’s sixth most populous, has long been an economic underachiever, habitually relying on aid from international partners concerned about its strategic importance.

Aziz, who led work on the PLM-N’s policy manifesto, said the new cabinet would tackle in its first 100 days the most pressing challenges of power shortages and financial hemorrhage with a series of steps to cut waste and improve efficiency.

Aziz said tackling inefficiencies, clamping down on those who don’t pay bills, should help squeeze 10-12 percent more energy from the existing system, and the Pakistani people, some of whom have no electricity for 20 hours a day, should feel the difference in coming weeks.

On the budget side, the government will overhaul loss-making state firms by installing managers with private sector credentials, tighten tax collection by building computerised databases and freeze hiring by government agencies, Aziz said.

But he suggested the new administration had little appetite for quick, but painful fixes prescribed by the IMF and others – an increase in electricity tariffs and subsidy cuts and abolition of special tax exemptions granted to well-connected businesses and individuals.

Asked what concrete steps would follow Sharif’s declared intention to improve ties with India strained by a long-standing dispute over the Kashmir region, Aziz brought as examples relaxation of visa requirements, removal of non-tariff barriers and the better integration of energy systems.

Asked what concrete steps the new government would take to improve Pakistan’s security, essential to boost its investment appeal, Aziz acknowledged there was no blueprint.

“The problem is that security and foreign policy are not entirely under our control. Economic vision is under our control so we can spell it out, but what happens to Afghanistan after the Americans withdraw in 2014 also plays a role.”

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Reader Comments (29)

  • Pacer
    May 24, 2013 - 9:00PM

    84 years old, really? Why cant we move forward from stone age administrators

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  • Adnan
    May 24, 2013 - 9:33PM

    For a start, he should get Itefaq Founderies to pay its electricity bills!

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  • Adnan
    May 24, 2013 - 9:37PM

    Interesting that Mr ‘Surcharge’ Aziz is planning on fixing the economy ‘in the first 100 days’ of government!

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  • Adnan
    May 24, 2013 - 9:38PM

    If he had anything to do with that mindless drivel the PML-N calls a manifesto, God help us!

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  • mehboobBhai
    May 24, 2013 - 9:40PM

    Authorities should find innovative methods to stop those who are stealing electricity. Youth of our land are quite intelligent and innovative.

    Publish a document publicly which describes the challenges being faced in handling this situation in big cities and invite all Pakistanis around the world to take part in a the consultation to solve this problem. I am sure we will get some practical and swift suggestions from patriots around the world.

    Then there is the case of defaulters, such as:
    http://www.lesco.gov.pk/News&Media/5000071.asp

    Make public request to them to release the payment, even if they don’t feel liable. If they can make the payment… pay it for the Nation.

    Correct measures on tax reforms and stopping bijli chori will be a BIG to get out from this vicious cycle.

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  • Codewala
    May 24, 2013 - 9:40PM

    @Pacer: People chose PML-N and so this is what you get.

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  • Falcon
    May 24, 2013 - 9:42PM

    Although it comes across counter-intuitive, but I can see where he is coming from. The macro-economic stabilization reforms suggested by IMF such as fiscal austerity are usually helpful in the long run but their short-term political costs are high. Interesting thing to observe is his honest observation on two points: one that PMLN won’t be able to anger its rich supporters by removing tax exemptions and secondly, security & foreign policy is not entirely within civilian control.

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  • Fundyar
    May 24, 2013 - 9:46PM

    Actually I agree,
    Lets talk to IMF but don’t draw funds till we do some pro growth steps!

    Yet the first onus is on all to pay taxes

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  • May 24, 2013 - 9:49PM

    You can’t fix anything in 2-3 months. I think he’s talking about meeting IMF pre-conditions like raising electricity prices, devaluing the rupee, raising interest rates etc. Some of that could be done in 2-3 months.

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  • Muddassir
    May 24, 2013 - 10:03PM

    and Sir, when are you ordering the freeze of Foreign Currency Accounts??

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  • ali ahmed
    May 24, 2013 - 10:04PM

    it seems there a shortest of young people in pakistan..he is the man who frozen the dollar account

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  • I.khan
    May 24, 2013 - 10:07PM

    How an economy of a country can be revived in three months? Is he in senses? Why NS is stick to this guy and Isaq Daar. He should bring young blood with solid economic background not a charter accountant.

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  • Tahir Ali
    May 24, 2013 - 10:23PM

    I agree with his reflections.
    One important step should be to re-organise the dysfunctional FBR, They have failed.This year against the budget tax collection target of Rs 2381 billion, they will only be able to collect taxes of about Rs 1975.
    The Chairman FBR should be recruited from Private Sector through open advertisement

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  • ASQ
    May 24, 2013 - 10:56PM

    @mehboobBhai:
    itefaq foundry has been taken to courts by banks since early 2000’s with lahore high court declaring it’s assets to be auctioned last sep no point in sharing the link of lesco

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  • gp65
    May 24, 2013 - 11:13PM

    @Pacer: “84 years old, really? Why cant we move forward from stone age administrators

    YEp the interim Prime Minister, CEC and now this gentleman – all 80+ in a country where 50% of population is below the age of 21…Sadly though not this dramatic, the situation in India too is directionally similar.

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  • Fasial K
    May 24, 2013 - 11:23PM

    Its unfortunate to see so much pessimisum and critcism in comments without intelligent input!

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  • Ali
    May 24, 2013 - 11:27PM

    @abdussamad
    Bro dont worry at all what you are saying will be started once cabinet is formed formally and when they will announce OFFICIALLY that “KHAZANA KHALI HAI”!!!

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  • rashid
    May 24, 2013 - 11:32PM

    is it really so our country of millions have only 80+ to handle the country :(

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  • k. Salim Jahangir
    May 24, 2013 - 11:40PM

    After settling down PML-N’s financial wizards must consider preparing 5 year plan as we use to have during Ayub Khan’s time & which was considered extremely useful & some countries successfully adopted that model & improved their economies.But for some obscure reason we discontinued that.Will Mr.Aziz throw some light as why can’t we restart preparing 5 year plans once again to jump start our economy & development?

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  • Skhan
    May 25, 2013 - 12:09AM

    How long this nation will rely on IMP? Are we ever going to rely on ourselves? not in this lifetime I guess… very Sad!!!

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  • H Chaudhry
    May 25, 2013 - 12:44AM

    @Rashid in this country of millions you will not find many Harvard educated economists. For what its worth, Alan Greenspan was quite old as well while running US Federal Reserves.

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  • meekal a ahmed
    May 25, 2013 - 12:47AM

    I will always have a soft spot for Sartaj Sahib who was my first boss in Planning many years ago and he taught me a great deal.

    But Pakistan’s objective conditions on the economic front are pretty grim. The correctly-measured and the broadest measure of our fiscal deficit at end-year is not going to be less than 10% 0f GDP — a new record. That is the root cause of our financial instability.

    Whether the Fund is around in the context of a new financial arrangement or not, this deficit has to come DOWN, not go up in the immediate term and it must trend downwards over the medium term. Only in that way will there be space/room for the private sector to grow and for the public sector to stop pre-empting the economy’s resource envelope. Government borrowing has to come down and the debt-to-GDP ratio has to come down. Borrowing by the private sector has to go up or there will be no growth and no jobs.

    Sartaj Sahib is being optimistic about how quickly the new government can get results from whatever policy measures they put in place. I am sure he knows all about the long lags between policy actions and outcomes. Growth-enhancing structural reforms can take years to bear fruit and only if they are pursued with great vigor.

    We don’t know what the new government has in mind in terms of concrete measures but we should get a first glimpse of the thrust of policies in the up-coming budget.

    Till then, we should suspend judgment.

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  • Lahori Badshah
    May 25, 2013 - 1:27AM

    People had voted PMLN over PTI, specially the rural Punjab. Now don’t complain. Bear this party for 5 years.

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  • k. Salim Jahangir
    May 25, 2013 - 12:18PM

    Mr.Meekal A Ahmed has given a very brief, though bleak, but true picture of Pakistan economy. Now, one will minutely observe the performance of Mr.Nawaz Sharif’s team as how best they take the country out of the existing financial quagmire .Mr.Ahmed is an economist & can make valuable contribution by suggesting & giving his input to help the government in waiting.

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  • Vlad Singh
    May 25, 2013 - 12:35PM

    This is real tragedy of Pakistan and India, there is retirement age for every employee but no retirement age for an politicians . It’s generally accepted and medically proven world over that after certain age there is deterioration of body . It no longer functions as efficient at 84 yrs than below 50 yrs . Maybe be politicians think that brain is not part of body. Let the youth come forward with flexible and brilliant minds ..

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  • truthbetold
    May 26, 2013 - 1:15AM

    Why not ask the “higher than Himalayas, deeper than Indian ocean, sweeter than honey” true friend China to donate $10 billions? All the problems will be solved in a second.

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  • truthbetold
    May 26, 2013 - 2:59AM

    @meekal a ahmed:

    While your observations are all correct, you neglected to mention the most important factor in stabilizing the economy. Pakistan has been spending way over its head for the past several decades. Unless and until government spending is brought within the means, the economic problems will get increasingly worse. Now, on spending, there is nothing much can be done about interest payment and debt servicing. Big spending cuts have to come from defense spending and government administrative spending. As history indicates, these areas will never be cut. So there you have it, Pakistan has to continue to borrow more externally to delay the inevitable ultimate economic collapse.

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  • David_Smith
    May 26, 2013 - 12:19PM

    @meekal a ahmed:
    It’s a dilemma, Keynesian economic theory as explained by Paul Krugman is that in an economic situation that Pakistan currently has, there must be greater expenditure in the short run to kick-start the economy, but then how do you deal with the consequences?

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  • Wajahat
    Jun 10, 2013 - 10:20PM

    The plans looks impressive but lack credibility…..How is Nawaz going to win votes if he sack state owned enterprise employees?? (will see) How he can crack down on electricity theft when he himself stole electricity during his election campaign??? (Hypocrites, this part of policy is probably lip service)
    indebting highly indebt economy…..God only know what will be next!!!!
    By the way I pray that all his ideas work……May Allah Help you in your presumed efforts.

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