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IMF programme of 1.6 billion for Pakistan may be scrapped and a new comprehensive package may be worked out

Dec 13 - 19, 1999

The 3 member IMF Staff Mission which returned to Washington after 4 days stay in Islamabad held important discussions on the new package of economic reforms under preparation by the new team of economic managers in Pakistan. The mission was briefed on various issues including tax reforms, broadening of taxation base' eradication of corruption and tax evasions, bank default and ensuring good governance in the country.

Official sources told page that the team headed by Paul Shabrier, Director of Middle East Departments, held a series of meetings with officials of Finance Ministry and the Central Board of Revenue. Later they had a meeting with the Finance Minister Mr. Shaukat Aziz who briefed them about the seven point agenda of the Chief Executive Gen. Pervez Musharraf. The mission was told that the government has worked out 2 year medium term economic package to implement the economic part of the seven point agenda.

Later briefing the newsmen, Secretary General Finance Moin Afzal said that the visit of the mission was not in connection with the suspended ESAF/EFF tranche to Pakistan but to apprise to Mission of the on-going efforts to launch a more profound economic reforms programme with a view to paving the way for a closer association of the IMF with the country's ambitious economic objectives. An IMF briefing in Washington also confirmed Pakistan government's request to the IMF to send its Staff Mission.

This development has brought into focus the contact of the new government with the IMF for the first time after over one and a half months of the dismissal of the Nawaz Sharif government. Thus the ice has seemingly melted but the question of the old and outstanding tranche of $280 million has been pushed further deep into the cold storage. However the resumption of negotiations with the IMF is a good omen for the Pakistan government and its agenda for economic revival. Under the present circumstances, the objective of turning the economy around will be hard to achieve without the assistance and support of the international financial institutions in the phase of planning as well as implementation.

Finance Minister Shaukat Aziz and the head of the IMF team have both expressed their satisfaction over the proceedings. 'We are satisfied how things are progressing in Pakistan" said Mr. Chabrier at the conclusion of the mission. The primary purpose of these meetings in Islamabad was to brief the IMF on the salient features of the economic agenda this government is in the process of formulating with the help of the newly formed Economic Advisory Board.

The task involving the restoration of foreign private investment inflows is inalienably linked with IMF's improved relationship with Pakistan because the international credit rating agencies, multi-national companies and international banking companies look to the IMF for its attitude towards a particular developing country before deciding to invest or offer loan assistance.

The on-going preparations by the government to produce effective plans for the economic revival in the various sectors, it may be pointed out, would take another two weeks to complete. In this context the IMF Staff Mission seems to have been invited before the firming up of policy initiatives. As a result the upcoming plans of the present government may also include some input from the IMF. This shows that Pakistan government would have to pursue long extending negotiations with the IMF, on the basis of the homegrown economic revival programme for the purpose of seeking a bigger loan package from the institution.

Sources said that mission which was here to have its own assessment of the economy and to know whether some environment was being created to facilitate foreign investment in Pakistan. The mission showed its keen interest in the setting up of the Economic Advisory Board and the subsequent formation of 13 subgroups to make recommendations for reforms. Mr. Shabrier also inquired about the formation of the National Security Council and the federal cabinet. He was informed about the members of the Council and the cabinet. He was inquisitive about the on going accountability process particularly related to recovery of bank loans and the proposed action against bank officials instrumental in sanctioning of big loan without proper colleterals.

The mission took particular note of the proposed measure to levy tax on farm income which is a part of package of tax reform prepared by the sub-group on agriculture.

The proposals made by the subgroup on agriculture pleaded for effective implementation of tax on agriculture income, experts in the sub-group believed that it was time the rich landed gentry was brought in the tax net. "How these land reforms could be undertaken and implemented has been left to the military rulers", said a source. Farming on a mass scale had been suggested to increase productivity by channelling domestic and foreign investment into agriculture. The government would offer macro-lending to encourage people to invest in agriculture.

It is being indicated in the relevant circles in Islamabad that the IMF programme of 1.6 billion for Pakistan may be scrapped and a new comprehensive package may be worked out in view of a more comprehensive and larger plan of economic revival and reforms.