February 14, 2019 (MLN): The clouds of uncertainty have somehow dissipated now as the most deliberated issue of 2018 till date regarding whether Pakistan will accept IMF programme or not seems to come to an end. The policy makers and analysts have been so far engaged in figuring out whether Pakistan’s 13th loan programme since the late 1980s will finally break the cycle of financial crashes and bailouts.
The picture is much clearer now after the meeting of PM Imran Khan with IMF Managing Director Christine Lagarde at the sideline of Dubai Summit in which both parties discussed the recent economic developments and prospects for Pakistan in the context of ongoing discussions toward an IMF-supported programme. This development suggests that the government and the IMF have reached broad level consensus with regards to potential bailout package.
Yet it is too early to say that the negotiations are conclusive, as the fund’s support would be depending upon the Pakistan authorities agreeing to standard normal IMF conditions which include governance reforms, raising revenues, restructuring or privatization of state owned entities, market-based exchange rate movements, hiking electricity tariffs up to 30% , imposition of integrated value added tax (VAT) for bringing both goods and services under uniform tax collection agency, and achieving primary budget deficit in to surplus etc.
Government has already made some of these adjustment and a few are pending. In order to achieve fiscal consolidation under the condition of primary balance of budget into surplus, the government is left with no other option but to enormously decrease grants and subsidies as well as development expenditures.
“The PM has suggested the fund to make this program gradual and back loaded to minimize the pain caused by taking difficult measures, while IMF wants it to be front loaded” says Dr. Ashfaque Hasan khan while giving his views to Mettis Link News regarding this recent development.
According to him, PM has also pointed out the fund to remain committed to wide ranging structural reforms, and now how much IMF agrees will be clear once the programme is finalized.
On asking upon how much the programme would impact the economy, he said, “My stance is no more devaluation and no more increase in discount rates”.
He further added that the government has already taken adjustment measures including devaluation of currency and discount rate adjustment from 6.75% to 10.25% (450 bps) which is more than enough for current circumstances, any further increase in discount rates and devaluation of currency will have serious impact on economy.
Since, many analysts and policy makers believe that the upcoming program will be folded in to the toughest conditions as government will have to take difficult measures to overcome the imbalances on macroeconomic front. Nevertheless, this development holds broader positive implications in general from the market perspective, as entry into IMF programme would restore investors’ confidence.
Pakistan’s entry into IMF programme would also unbolt other funding sources including the multilateral lending agencies and would give confidence to other international organizations to invest in Pakistan.
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