WEDNESDAY SEPTEMBER 21: IMF programme may not be sought on politically unacceptable terms

ISLAMABAD: The country's economic team is hedging its bets by maintaining that it will neither seek to reactivate the stalled Stand-By-Arrangement (SBA) nor any new loan, in case the International Monetary Fund (IMF) refuses to extend assistance on terms that are politically acceptable, sources exclusively told Business Recorder.
The country's economic team was fully prepared when it left for Washington with a comprehensive set of figures that, critics fear, may be challenged by the IMF, including revenue collection figures. Mistrust between the Fund and the government widened subsequent to overstating revenue collections for 2010-11 by Rs 38 billion by Federal Board of Revenue Chairman.
The economic team's attempt to woo the IMF is increasingly being viewed as 'unimpressive', attributed to his lack of political clout to implement the needed reforms that include power sector reforms, management of fiscal deficit within the limit agreed with the Fund and implementation of a broad based sales tax in value-added mode. Pakistan also failed to comply with IMF condition of having a single treasury account and granting autonomy to the State Bank of Pakistan (SBP).
Sources said that reports attributed to high-ups in the Finance Ministry that Pakistan is neither interested in revival of stalled $11.3 SBA nor in a new program is unrealistic and may be an attempt to avoid embarrassment in case the Fund refuses a new loan on politically acceptable conditions. Former Chairman of Economic Advisory Council (EAC), Dr Hafeez Pasha, said that there seems to be clear indications from the IMF that this time around pre-loan release conditions would be imposed that would be considerably more stringent than those the government failed to implement while on the SBA.
Pasha said that the IMF program was important for implementation of economic reforms, to minimise the burden of subsidies to the power sector and state owned entities (SOEs) as well as to increase the confidence of foreign investors.
An official of Finance Ministry said that the fiscal deficit which was hovering around 6 percent of GDP in the last two years may go well over 7.4 percent if the country comes out of the IMF program. Total budget deficit that was considered unsustainable and that compelled the newly elected PPP government to seek IMF assistance in 2008 was 7.4 percent.
Ending the IMF program is expected to have negative repercussions on assistance from other multilaterals and bilaterals. If the government fails to drastically curtail expenditure and bring it in line with revenue collections (inclusive of external resources) then it would enhance deficit financing or borrowing internally, a highly inflationary policy the cost of which will be borne by the poor. This, analysts say, may propel debt servicing to cross the Rs 1 trillion mark.