2013 balance of payment crisis led to reduction in forex reserves: IMF Director

International Monetary Fund (IMF) Director for the Middle East and Central Asia Masood Ahmed has said the severe balance of payments crisis that Pakistan faced in 2013 led to a significant reduction in its foreign exchange reserves, which in turn led the government to seek help from the Fund. He stated this during a roundtable discussion organised by the Lahore School of Economics, here on Friday.
He answered a string of questions about the Monetary Fund, the energy crisis, the impact of the plummeting oil prices on the oil exporting and importing countries, such as Pakistan, and other related matters.
About the oil prices, he said it was a serious matter for policymakers and those interested in macroeconomic stabilisation and long-term growth and that the significant fall in the oil prices had been handled differently by the developing countries. "Some countries, like Pakistan, have decided to pass on a significant portion of the fall in the oil prices to the final purchasers, while others like India kept the final prices of fuel the same by increasing the taxes on these products to shore up their domestic revenues," he said.
He talked about the reasons as to how significant the decline in the oil prices which has had a major impact on the economies that are heavily reliant on oil and also about the balance of payments impact of the falling oil prices. He also answered questions about the Monetary Fund's voting format and whether its decisions were based on the interest of some of the major economic powers, whether it took into account the geopolitical realities that Pakistan was facing presently, its role in Pakistan and as to why it insisted on significant reductions in expenditures which mostly led to significant reductions in development expenditures that could hurt long-term growth.
About the reason as to why the major loan giver insisted on increasing tax revenues which in many cases led the government to adopt taxes that many considered regressive, he said one of the major issues facing the developing countries is that these spent more money than they could collect and this led to macroeconomic crises.
He said the bank had recognised that governments tended to slash development expenditures immediately which meant that there were significant reductions in spending for critical sectors such as health and education. "For this reason, the IMF now includes in its programme a requirement that the governments maintain a certain level of spending in critical social sectors," he said. "The IMF does not get involved in determining specific taxes but is more concerned with the overall objective of macroeconomic stabilisation."
And when he was asked why Pakistan constantly kept re-entering bank programmes but failed to complete any as such, he said the two issues were closely interlinked: "Pakistan has some basic structural problems which become severe every few years and requires IMF assistance, but after a year or two of the IMF programme the Pakistani government feels that the crisis has passed so they do not continue to take measures to address these issues. This has led to a cycle in which the Pakistan government asks for IMF assistance, stabilises the economy, and then stops following IMF advice for long-term reform which then leads to the same crisis reoccurring after a few years."