Those who had believed that negotiations for another programme with the IMF would be easy and on Pakistan's terms need to have second thoughts. According to a report in a reputed newspaper (Dawn) on 26th June, talks with the visiting IMF Mission, headed by Jeffery Frank on a new loan programme have not been as reassuring as the new economic team had expected. Questions were raised over the government's tax collection target, loosening monetary policy of the State Bank, projections for foreign inflows in the budget and the steps to achieve macroeconomic targets in the medium-term.
According to IMF's baseline assessment, the current year's tax collections could at best touch Rs 1,980 billion as against the FBR's projection of Rs 2,007 billion and the budgetary target of Rs 2,381 billion. The Mission was also doubtful about the FBR's ability to achieve next year's target of Rs 2,475 billion and also asked how the government could expect huge foreign resources from the IMF and other multilaterals before reaching an agreement on a new package. Unlike the government's estimate for increasing the tax-to-GDP ratio to over 10.1 percent next year, the IMF believed that the tax measures announced in the budget could hardly achieve a growth of 0.7 percent to raise this ratio not over 9 percent. IMF Mission was also not satisfied with economic policy measures to achieve major macroeconomic targets over the next three years. Besides, recent easing of monetary policy through a reduction in the policy rate had not gone well with the IMF team. It had expected tightening of monetary policy to control fiscal deficit and inflation and for exchange rate stabilisation but the SBP believed that the private sector had to be supported for economic growth and restraining country's debt levels.
The news that the visiting IMF team finds major revenue targets unrealistic and is not satisfied with current monetary stance, etc is hardly a surprise. The present government may be very sincere in objective assessment of the economy and keen to fix and announce only realistic targets but the track record of the country is far from reassuring. Pakistan has a history of agreeing to ambitious targets in various programmes, violating conditionalities and then seeking waivers or abandoning programmes in between. There was a time when certain data was even doctored to continue with the programme. Also, the staff of the IMF usually consists of professional economists of high caliber who make their own calculations and cannot be easily convinced by government's promises. They have to work really hard because they have to take the country's case to the Executive Board and defend it there with proper evidence and arguments. This is not to say that the IMF cannot make mistakes but only to assert that Pakistan's request for a new programme cannot be considered unless the IMF staff is fully satisfied with the expected performance as well as terms and objectives of the new programme. So far as the present reservations of the IMF are concerned, these are debatable but cannot be easily wished away. Lender can sometimes force its arguments when borrower is in dire need of resources. When Finance Minister Ishaq Dar had claimed that fiscal and economic policy measures announced in the budget for 2013-14 were sufficient to secure a fresh extended fund facility (EFF) on Pakistan's terms to repay the IMF's outstanding loan, it was believed that the IMF staff was on board and had already agreed with the new framework. It now transpires that this was not the case and the process of negotiations could be long and tedious. In the meantime, Pakistan should try to win the support of the members of the Executive Board of the Fund who are usually guided by the level of sympathy for Pakistan in their own countries and ask very tough questions if their countries are not pleased with Pakistan for some reason. Government is also reported to be working on Plan B if the conditionalities of the IMF are not acceptable to the country but such a plan would be very expensive in terms of interest rates and also may fail to mobilise the needed amount from foreign sources.
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