The matter was discussed during the recent meetings of Pakistani finance minister, Abdul Hafeez Shaikh with IMF management in Washington, DC recently on the sidelines of annual meetings of World Bank and IMF. The minister was “politely conveyed” that they had failed to honour commitments of financial reforms which resulted in the termination of programme prematurely, as the last tranche of $ 3.3 billion was not released by the IMF.
“We have to present this development in the IMF board, which will never approve issuance of Letter of Comfort to Pakistan”, the officials concerned told the minister while also “warning that such a situation could further isolate Pakistan and hamper its ability to negotiate with other financial institution, like World Bank and ADB, for whom IMF s LoC is a pre-requisite for any talks with a country”, highly-placed sources informed Dunya News.
Pakistan had agreed to introduce Value-Added Tax (VAT), reduce subsidies in power sector and reduce government s borrowing from the State Bank while starting the $ 11.3 billion loan programme with IMF. “The IMF is not averse to negotiating a new loan for Pakistan, but the non-satisfactory performance will certainly echo in the board meeting when it comes to the approval stage”, the source pointed out.
Finance Minister Shaikh, on the other hand, has been asserting before the media that they had decided to end the programme on their own because the country s financial situation was better. The IMF officials cautioned the minister that the better financial health depended on external factors like increase in export prices and remittances, which were not in control of the government. “It must be remembered that unit price has increased in international market, not the volume of exports”, sources informed.
The mission is foreseeing a global recession in the next year or two, signs of which have already started emerging in Europe, and Pakistan could also face its consequences. “Pakistan was told to prepare for it with focus on internal financial discipline and reforms”, the sources said adding that the much-touted Article-IV consultation process, starting in November with an IMF delegation to Pakistan, was “also likely to result in the same observations”.
The Pakistani delegation had to be disappointed in separate meetings with World Bank and Asian Development Bank. The World Bank told the minister that “they could not grant fund for any new project in Pakistan because disbursement of already initiated programmes had hit a snag”.
A look at the existing WB portfolio in Pakistan reveals that a loan worth approximately $ 240 million has been provided to Pakistan for different projects but only $ 6 million of these have been disbursed despite the lapse of more than a year because of allegedly poor management of bureaucracy in Pakistan. “The same was conveyed by WB to the minister in the meeting”.
In the meeting with ADB, Pakistan requested for assistance in the energy sector because of acute power shortage. “Although there was not a clear refusal, the ADB officials said that they will consider and discuss the possibilities”, the source said adding that “the chances are slim because Pakistan did not pay any heed to previous ADB recommendations for reforms in this sector”.
During the last couple of years, the ADB has done several studies on Pakistan s energy sector and had given some clear recommendations for reforms. “The Bank had asked for rethinking the circular debt problem and how it originated because it could not be solved by government paying it”, the sources recalled adding that the ADB had identified three major reasons for the energy crisis.
“These reasons included non-collection of outstanding dues worth billions by public entities in almost every province of Pakistan, line losses because of administrative inefficiency and need for restructuring of DISCOs (distribution companies) in order to make these operationally and financially independent by disbanding PEPCO”, the source confided.
The finance minister, because of his previous experience of working in the World Bank in senior positions, was already aware of most of the points raised during these meetings. “However, he did request the officials concerned during these meetings with international financial institutions not to make any adverse remarks against Pakistan in public because it will further aggravate the problems for the government”, the sources informed.
When this scribe questioned the finance minister, Abdul Hafeez Shaikh about the reservations expressed by the officials during the said meetings, he termed them baseless. “None of them have any reservations and have in fact appreciated Pakistan s performance”. Speaking separately at a press conference before returning to Pakistan, he said that “Pakistan s financial health was good and there was no need to take extra burden of more loans”.
What questions should I've asked that I didn't? 