IMF to relax curbs on fiscal policy

[Naveed Yaseen]

ASMA RAZAQ
ISLAMABAD (April 25 2009): The International Monetary Fund (IMF) has said that it would relax the restrictions imposed on the fiscal policy of Pakistan. Recently, John Lipsky, Deputy Managing Director of IMF, told media persons in Washington that due to the worsening global economic position, the Fund was in the process of relaxing the constraints and conditionalities imposed on the fiscal stance of Pakistan, Ukraine, Hungary and Iceland.

"When you defined your program in some program countries like Ukraine, Hungary, Iceland, Pakistan, some others, it was six months ago. Six months ago, the view of the global economy was not as bad as it is today. And that is why we are now in the process of relaxing our constraints on the fiscal stance for those countries, because they are facing a global environment which is not, I won't say not as good, even worse than the one which we had in mind six months ago", he said.

According to the restrictions of IMF on the fiscal policy of Pakistan under the program, fiscal deficit (excluding grants) is targeted to decline to 4.2 percent of GDP (Rs 562 billion) in 2008/09, from 7.4 percent in 2007-08.

IMF has restricted the government to continue to press ahead with public financial management reforms, in line with fiscal ROSC recommendations. According to one of the conditionalities of IMF, the government's fiscal framework has to assume a further reduction in the fiscal deficit to2-21/2 percent of GDP by 2012/13.

Also it was being emphasised by the IMF that the fiscal consolidation would have to be supported by a strong tax effort, which would allow for higher spending in infrastructure and the social sectors. Keeping in view the restrictions imposed by IMF, the government of Pakistan has already taken essential steps. Consistent with the government's objective of substantially increasing tax revenue, a number of tax policy and administration measures are envisaged during the program period.

IMF has already pointed out that Pakistan is implementing the program successfully. A statement of Mohammad Mojarrad, Executive Director for Pakistan and Ehtisham Ahmad, Senior Advisor to Executive Director, issued by IMF, said: "Since the program was approved in late November 2008, conditions have been increasingly difficult for Pakistan, with a worsening of the external environment, and a slowing of growth and activity levels in the country.

Political tensions have also played a role, as have renewed terrorist attacks, including recently in Lahore. Yet, the Government has worked hard to implement the program and has met all the quantitative performance criteria, reflecting the extent of program ownership. The recent political agreement that led to the restoration of the judiciary and affirmation of the rule of law augur well for the future, and the country's ability to adapt to the economic and security challenges facing the region".

The statement further said that the market determined exchange rate had been broadly stable in Pakistan. "Gross reserves have increased; inflation has fallen; and T-bill rates have tended downwards. There has been a strong response to T-bill auctions and the Government has retired some of the stock of its debt to the State Bank of Pakistan".

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