IMF wish list

As the financial year winds down, the IMF looks to next

The International Monetary Fund is not showing any signs of letting go even as the current programme winds down. As the current financial year comes to an end, the preparations for the next are underway, with the IMF already ready with its wish list designed to further the reforms it had recommended at the beginning of the current programme. Though it is winding down, there is the prospect of a new programme coming up. Though the loan of $1 billion from the Resilience and sustainability Facility helped bolster the country’s forex reserves, the effect is that it acts as an incentive to get on a new programme, for after the current programme is exhausted, a fresh loan will only be possible if Pakistan is on another programme.

The focus of the IMF, as it arrives towards the end of its current programme, will be on increasing the primary surplus to two percent of GDP. This is supposed to be done by increasing the tax net, bringing within it untaxed sectors such as agriculture, exporters, IT, real estate and retail. This has been an old demand, and may have to be combined with a reduction in the rate of tax on salaries, which is the highest in the region, and which is seen as a drag on growth. The coming budget is supposed to be pro-growth, though this might be difficult if the US-Israel-Iran war continues. One of the demands of the IMF is the ending of subsidies on fuel, which the government had reintroduced as a way of giving some relief to consumers hard-pressed by the rise in fuel prices, as well as in the consequent rise in transport costs.

One of the problems the IMF, as well as the government, is grappling with, is how long the war is going to last. It is not so much the war that matters, as the global oil price, which depends on the reopening of the Hormuz Strait, and which will only happen if the war ends. It needs remembering that the IMF might indeed be the lender of last resort, but it is also part of the Washington consensus, and is one of the instruments by which Pakistan’s nose is kept to the wheel. It is the prospect of US support at the IMF and other multilateral financial institutions that keeps Pakistan aligned with it. The access to the money markets is usually trotted forth as an excuse, is just that: an excuse.