IMF (International Monetary Fund) and Pakistan has been in a long term relationship for almost fifty years.
Developing nations like Pakistan do occupy loans from the IMF, for the purpose of financial management and deal with the problems like debt financing and current account deficit. Pakistan signed last SAP (Structural Adjustment Program) in the year 2013,As per that IMF program, then government agreed to terms for an IMF loan of 6.6 billion dollars disbursed for the period of almost three years.
The program was ended in the year 2016. It was expected that after this financial assistance from IMF Pakistan would not go to IMF again. But due to bad economic management and least structural adjustments in the economy yet again Pakistan has been trapped into a similar condition. External Debt in Pakistan averaged 54065.23 million dollars from 2002 until 2018, reaching an all time high of 95097 million dollars in the second quarter of 2018 and a record low of 33172 million dollars in the third quarter of 2004. In these circumstances its need of the hour to consult IMF and other nations for the purpose of financial assistance.
The current government has been successful in getting a financial assistance from the KSA (Kingdom of Saudi Arabia) and China. The Saudi government has given a financial package of around 9 billion dollars, which include oil on defer payments plus 3 billion dollar for the purpose to balance the imbalances in current account. And as per the un official news sources a similar kind of package has also been given by the government of China during the recent visit of the Prime Minister Imran Khan.
Before these visits most of the financial and economic experts was expecting that Pakistan would go to the IMF for the biggest financial package which may worth 10 to 15 billion dollars. But after these visits the Minister of Finance MR Asad Umar confidently said that balance of payment crisis is over. After this statement financial and economic critics have been asking questions about the need of this new IMF deal.
IMF’s has played an integral role in the last five to six years in Pakistan’s economy. Since 2008, the financing and refinancing of loans has become a critical issue for Pakistan. The IMF in the past again and again suggested and advised Pakistan to work on the structural adjustments in the economy. For instance the mismanagement in the power sector is a critical issue.
The circular debt which had been cleared by the previous regime yet gain arise to the Rs 1.14 trillion. It is the need of the hour to alter the whole power sector. The current government should work on it. The current delegation from the IMF has also expressed concerns about the poor performance of FBR (federal board of revenue). The tax collection has been the weakest part of the Pakistan’s economy.
In the past most of the governments used indirect taxes like petro levy, custom duties, general sales tax and withholding tax. Due to this the ratio of direct taxes collection in Pakistan is very low at 11.21 percent, and Indirect taxes contribute almost 88.79% of the nation’s revenues. Indirect taxes impair the purchasing power of middle and lower income groups which represent major segment of Pakistan’s total population. The non documented black economy has deepened its roots in Pakistan’s economy. The tax net needed to be widened.
Now is the time for the current government to work on the suggested and due structural adjustments in the economy. If they successfully implement this program of structural adjustments, history will remember them; otherwise it would be the one last time when people borrow the agenda of change
Keeping in view these circumstances it is pivotal to go to IMF. It’s the matter of the fact that those 7 to 8 billion dollars from two brotherly nations have rescued Pakistan’s economy. The current account imbalances have been settled for a while. But at the same time, Pakistan’s economy needs a very special kind of financial and managerial over hauling. Until the completion of these structural adjustments in the economy it’s vital to get financial assistance from the IMF.
The financial assistance from the KSA and China has given a very strong financial leverage to Pakistan’s economy, due to which the current government has come into a better negotiating position with the IMF.
Now is the time for the current government to work on the suggested and due structural adjustments in the economy. If they successfully implement this program of structural adjustments, history will remember them; otherwise it would be the one last time when people borrow the agenda of change.
The writer can be reached at [email protected]
Published in Daily Times, November 19th 2018.