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Finance Minister Shaukat Tarin has announced that Pakistan is not leaving the IMF programme nor is it being suspended. There was immense speculation after Pakistan introduced the Budget 2021-22 without imposing any new taxes in defiance of the terms set by the global financial institution.
The IMF said further discussions are needed on Pakistan’s fiscal spending, structural reforms particularly in the tax and energy sectors, and social spending. The IMF declined if disbursements had been halted and the finance minister said they had shown flexibility and would remain in the bailout programme. The IMF staff were unable to complete talks during a recent visit but they would remain engaged to resume talks and accelerate the implementation of policies.
Pakistan and IMF have agreed to continue talks for the time being and narrow down differences, but the programme has been put on halt until the next review which has been delayed to September this year. The change of economic policy from stablisation to growth was interpreted as sign that Pakistan could get out of the IMF programme but the finance minister has ruled out any such possibility.
Before announcing the budget, IMF had asked the government to impose income tax of Rs150bn and an increase in power tariffs and electricity prices. The finance minister refused the inflationary measures and asked them to focus on capacity building. This was a marked change in policy as the government is more focused on economic growth in the upcoming years.
Pakistan has been emboldened after it announced plans to launch Eurobonds worth $2.5 to boost its foreign reserves. It is also set to issue Sukkuk bonds for which several assets including airports and motorways have been mortgaged. The Eurobonds would be issued in the next three to six months around the same time when IMF reviews Pakistan’s case.
Tarin has reasoned that Pakistan’s economy declined because IMF placed strict conditions, including increasing the interest rate to 13%, devaluing the rupee and an increase in tariffs. In addition to all this, the icing on the cake was that the coronavirus pandemic affected the country. Pakistan may have sigh of relief but there is still a long way before we develop the economy.
