Reconditioning IMF loan

From the look of things, the decision to go back to the IMF for a fresh programme, has been made. Essentially the government of Pakistan will be retiring debt with a new loan from the same institution, but with some different conditions. The need of the hour is to learn from the mistakes of the past and try to negotiate in a way to reap benefit out of subsequent IMF loans.

Unlike the previous regime, this time around there is no seasoned economist at the helm of the Ministry of Finance. The Fund may need to connect the dots to facilitate the chartered accountant-led MoF. The core objectives of new programmes will focus on plugging fiscal gaps, spurring investments and restoring macroeconomic stability. That includes tax enhancement, slashing subsidies, resolving energy woes and lowering the reliance of the government on borrowing from the banking sector, especially the central bank.

With the passage of 18th amendment and seventh NFC award, this time emphasis shall be on institutionalising the integrated fiscal plan. The provinces now have higher share of resources while the inflexible expenses like debt servicing and defence spending are on the shoulders of the federal government. Hence the need is to plug part of the fiscal deficit by generating provincial surpluses.

The federal government is budgeting surplus from provinces but for the third consecutive year, the provinces are budgeting deficits in their respective budgets. That practice must be halted. There are two bodies; the Council of Common Interests and the National Economic Council that should be utilised for coordination between the provinces and with the centre but so far both have failed this role.

Then the federal government has imposed FED on various services, effectively encroaching on the tax domain of the provinces. In the aftermath of this transgression, the Sindh Assembly is embroiled in a heated debate. Clearly, the federal and provincial finance ministries must improve coordination if the tax net is to be expanded.

Unfortunately, the government is not focusing on fiscal discipline across levels of government. Instead there is heavy reliance on unrealistic revenue generation targets for FBR. The Fund will probably question policymakers about the efficacy of targeting 24 percent growth in FBR revenues in the new fiscal year, given a meagre growth of six percent in the outgoing fiscal under the same head.

Then on the power sector reforms there is a meeting on June 27 of the Energy Committee to decide upon the clearing of pending Rs270 billion owed to the IPPs. The Fund shall ask about the plans to do so and its inflationary impact.

In the absence of better coordination between different layers of government, it is not possible to attain a growth momentum of six percent while keeping inflation within single digits in line with the medium-term budgetary framework.