The Pakistani government and the International Monetary Fund have reached an agreement for the disbursement of a tranche of $506 million next month as part of the $6.8 billion IMF package for the country under the extended fund facility program. Addressing a press conference after signing the agreement, Finance Minister Ishaq Dar announced cut in subsidies, withdrawal of tax exemptions amounting to Rs 100 billion and adjustments in energy tariffs during the next financial year. The minister also announced that the country’s foreign exchange reserves will be propped up to a record $18.5 billion in a few months. The minister said the staff level agreement on the seventh review of the $6.6 billon extended fund facility will be presented before the IMF management for approval.
According to newspaper reports, IMF mission chief to Pakistan Harald Finger confirmed the staff level agreement with Pakistani authorities, but set out a four-point policy agenda for the government to move into growth mode after achieving macro-economic stability in its first two years in the office. However, he agreed that there was no silver bullet to fix the economy and reforms required staying course. He said that the key priorities for the second half of the IMF program include improving the energy sector, widening the tax net to create space for infrastructure investment and social assistance, improving business climate and further strengthening external reserve buffers. He said that strong implementation of reforms in these areas, which are envisaged in the program, will transform Pakistan into a dynamic market economy. He expected that the Pakistan’s economy to grow by 4.1 percent this year and 4.5 percent next year.
However, Dar claimed that Pakistan would achieve fiscal deficit target of 4.9 percent of the gross domestic products during the current year, but the two sides agreed to have an allocation of Rs 130 billion or 0.3 percent of the GDP for the military operation for the next fiscal year. He said that the government has already spent Rs 44 billion on military operation and resettlement of internally displaced persons during the current fiscal year.
It is unfortunate that the government has based its economy on foreign loans, especially IMF which is the donor body and colonial power of the modern era. The first step the government should have to take is from basic level; that is to cut its spending and boost its economy through prudent management policies. The government has failed on both levels. The minister’s statement that the IMF is a development partner and not master is also contradictory.
