A team of experts from the International Monetary Fund is expected to come to Islamabad later this month to hold talks on a new economic stabilisation programme, it is reliably learnt. A Pakistani side led by Finance Minister Dr Hafeez Shaikh, which has returned from Washington, over the weekend, is confident that the Fund is definitely interested in signing a new Stand-By Arrangement.
However, it is Pakistani side which is divided over whether there should be new programme before March 2013 or after June 2013. One thing is very clear though Pakistan has to come up with firm numbers to enlarge the tax base and simultaneously reduce the budgetary deficit. The fiscal managers feel that earlier the programme less stringent will be Fund's conditionalities and agreement could be concluded on terms which are doable.
The fiscal managers want to avoid a repeat of 2007 when harsh conditionalities had to be accepted as the balance of payment (BoP) position was eroding rapidly due to postponement of sound economic decisions such as remaining firm on the pass through formula for oil prices. The then President General Musharraf, postponed retail price hike of POL prices and electricity tariff because PML(Q) stalwarts facing elections feared that they could lose support of voters alienated due to price hikes.
The present PPP-led coalition, perforce had to swallow the bitter pill and has repeatedly raised POL retail prices and electricity and gas tariffs during the last four years.
According to Fund officials, it is the Pakistani side which needs to tell us: "How they intend to lower the circular debt in a reasonable way and provide clarity on how subsidies will be reduced and tax-to-GDP ratio improved?"
According to informed sources, no numbers were discussed in Washington. And, the Fund heard presentation from Governor SBP Yasin Anwar that oil imports in totality are being met from the forex market and also a presentation from Chairman Federal Board of Revenue Ali Arshad Hakim of his plans to enlarge the tax base and collect more than targeted revenue through plugging of leakages and amnesty schemes.
All in all it is said that the Fund was reasonable in its interaction with Pakistan and avoided upfront imposition of any harsh conditions and favoured reasonable adjustments. They, however, disagreed on the probability of forex reserves going down rapidly with the Pakistani side.
Pakistan now has to come up with firm numbers and select options from a standard menu of the International Monetary Fund.
It all greatly depends on President Asif Ali Zardari which way the Pakistan side will swing. It is said in 2007, before assuming the high office he had sent the then Governor Shamshad Akhtar to the Fund. As a result Pakistan was in line before the financial crisis into Europe and got the loan facility quickly at reasonable terms than the Fund offered to some other countries. However, the let-down by so-called Friends-of-Democratic-Pakistan (FoDP) is now forcing Pakistan back into the folds of another IMF programme, to prop up its forex reserves.
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