Conditions will be known after IMF final approval:

By Khalid Mustafa

ISLAMABAD: The IMF press release is not clear in reading as it should have been and so it cannot be determined as to what is factually in the store. The language of the press release is vague.

“We have to wait for memorandum of economic and political policy to be released by IMF after the approval by executive board to know the exact details of the IMF loan agreement,” Dr Ashfaque Hassan Khan Principal and Dean of school of Social Sciences and Humanities in NUST stated this while giving its response to IMF statement about deal with Pakistan here on Sunday evening.

However, the loan programme will be for 39 months instead of three years (36 months). But the most starling thing is that the agreement is subject to IMF management approval and to approval by the Executive Board, subject to the timely implementation of prior actions and confirmation of international partners’ financial commitments.

This means the government, Dr Ashfaque said, have to take many prior actions to qualify for the approval of the loan from executive board of IMF which may include the satisfactory actions against money laundering and terror financing as for the first time in IMF loan programme under Extended Fund Facility programme the words of anti-money laundering and terror financing have been used. This means that unless and until Pakistan satisfies FATF on the said issues, IMF executive board will not extend green signal to $6 billion loan programme for Pakistan.

“Under the prior action, the government will have to bring down primary deficit from 3 percent to 0.6 percent in next budgetary year which will be an uphill task for the government.” He explained that the primary deficit means total revenue less than non-interest expenditure.

He further says that apart from debt servicing, the deficit between revenue and expenditure on defence, running development budget expenditure that stand at 3 percent will be brought down to 0.6 percent in next financial year. This means that Pakistan will be having no option but to place huge cut on development budget or on defence budget and if the government does not want to cut either development budget or defence budget, then it will have to generate massive revenue through taxation. Dr Khan said massive increase through taxation will not be possible at a time when the growth has tumbled to just 3.3 percent and in next two year it may go down more or may stand stagnant. “When the growth will be in the lowest ebb, that massive revenue generation will be impossible through huge taxation.”

Dr Khan, however, expressed satisfaction over the words of IMF in the press release about the NFC Award, IMF asked the government and provinces to create the balance in it. He said that there are many structural anomalies in the NFC which should be rectified to create the balance between the federal and provincial government on resources distribution. “The mentioning of IMF about this issue is very welcoming.”

Dr Khan again posed the question saying that Pakistan economy remained suffocated for the last one decade and how is it possible for the government to generate more revenue through massive taxation. In the press release it has also been mentioned that Pakistan will have to ensure market determined exchange rate meaning by that the central bank will have to be kept away from the exchange rate monitoring leaving it to the market forces.

Dr Miftah Ismail, ex-finance ministry of PML-N government gave his input saying that this programme will not work, rather it will be suspended after one tranche as the bringing down the primary deficit to 0.6 percent and generate primary budget surplus of 2.5 percent during loan programme period will not be possible and it is a difficult task and to achieve this target massive revenue generation is required otherwise the government will have to either cut the defence budget or development budget or both.

Miftah also mentioned that in the press release, Pakistan will have to have commitments from development partners for roll over of their loans meaning by that Pakistan will have to obtain the certificate from the China, UAE and Saudi Arabia that they are ready to roll over their loans.