IMF asks Pakistan to accelerate much-needed structural reforms

Int’l lender observes growth, investment, job creation dependent on resolving longstanding structural weaknesses

ISLAMABAD: While appreciating some recent achievements regarding reforms in government institutions, the International Monetary Fund (IMF) has asked Pakistan to accelerate much-needed structural reforms in the country.

In its second, third, fourth, and fifth reviews under the Extended Fund Facility to Pakistan, the Fund has said that the higher growth, investment, and job creation will crucially depend on addressing long standing structural weaknesses.  An uneven playing field for state owned enterprises (SOEs) and private companies, corruption, and red tape (especially excessive regulations and licensing requirements, obstacles to paying taxes, and difficulties trading across borders and registering property) remain a drag on productivity, investment, and the development of a vibrant private sector that can create high-quality jobs for a growing labor force.

According to the staff report of IMF prepared for the Executive Board’s consideration on March 24, 2021, following discussions that ended on February 15, 2021, with the officials of Pakistan on economic developments and policies under the programme, the international lending agency has appreciated recent achievements of the government which offer a good basis to accelerate much-needed structural reforms.

The staff welcomed recent steps, encouraged continued reliance on extensive technical assistance (TA) from development partners to mitigate capacity constraints, and identified follow-up measures with the authorities in three areas which included enhancing SOEs’ governance, transparency, and efficiency, boosting the business environment, job creation, and green development and fostering governance and the control of corruption.

As per the report, the authorities have submitted a new SOE law to parliament in March 2021 (end-September 2020), aiming to (i) define a rationale for state ownership; (ii) ensure commercially sound SOE operations; and (iii) regulate oversight and ownership arrangements. The preparation of the law benefited the IMF, which now also helps advance the authorities’ ongoing efforts to define a new ownership policy, amend several SOEs’ Acts, and operationalises a central monitoring unit within the Ministry of Finance (all by the end of summer 2021).

In March 2021, the authorities published a classification of all federal SOEs into those remaining under state ownership and those for sale/liquidation (end-September 2020). On that basis, the authorities are now gradually planning to reduce the footprint of the state in the economy to foster efficiency and reduce fiscal risks. The divestment of two LNG power plants and two small public banks is already at an advanced stage.

Besides, as per commitment of publishing audits of key SOEs, the recent audits include Pakistan Railways in March 2020, Pakistan International Airlines (PIA) in January 2020, and Pakistan Steel Mills (PSM) in July 2020. The next audit will cover the Utility Stores Corporation (USC) (new end-April 2021).

Regarding boosting the business environment, job creation, and green development, IMF was informed that current priorities of the government include simplifying processes to start businesses and approving FDI by reducing regulations and streamlining red tape. In addition, efforts focus on facilitating trading across borders by advancing further the ongoing enhancement in customs efficiency and simplifying paying taxes through a new simple and fully automated payment system. This would also help boost the formal private sector. Besides, the Companies Law was amended in May 2020 to foster startups while also attracting innovators, including from abroad. However, to expand Pakistan’s information technology, digitisation, and outsourcing sectors going forward, it will also be important to invest more in education and human capital, improve product market access, and increase information and communications technology (ICT) adoption.

The IMF has also been informed the approved national tariff policy was being implemented. Tariff rationalisation aims to reduce the level of protection while also reducing input costs to promote competition, exports, and domestic production (“Made in Pakistan”) for import substitution purposes.

Besides, a National Electric Vehicle Policy was also being implemented. It provides a framework to achieve ambitious targets for the sale of electric cars until 2030, with the aim to (i) reduce Pakistan’s GHG emissions and fuel import bill; and (ii) promote industrial growth and job creation through new investments and the introduction of new technologies.

For strengthening the effectiveness of anti-corruption institutions, the priority measures of government include the establishment of an asset declaration system with a focus on high-level public officials by end-June 2021 (new end-June 2021), publication of the second review cycle report under the UN Convention against Corruption (UNCAC), and review of the institutional framework for Pakistan’s anti-corruption institutions by international experts. Efforts to enhance international anti-corruption cooperation and recover stolen assets abroad are encouraged.

Another major commitment of Pakistan regarding the loan programme was to enhance the use of anti-money laundering tools to support anti-corruption efforts. The IMF has said that financial institutions should be effectively supervised to comply with due diligence obligations for politically exposed persons and suspicious transaction reporting. The effectiveness of Pakistan’s financial intelligence unit should be enhanced, and its membership to the Egmont Group be pursued.

Ghulam Abbas
Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]

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