ISLAMABAD: Soon after giving approval for $1 billion tranche for Pakistan, the International Monetary Fund has ordered the government to increase power tariff, eliminate circular debt, reduce corruption, and promote development work.
The Executive Board of the IMF today approved the release of $1 billion tranche to Pakistan, formally resuming the $6 billion IMF programme with successful completion of the sixth review.
With the release of $1 billion, Pakistan has received $3 billion or 106% of the quota from the Fund so far.
In a statement issued today, IMF said the economic growth of Pakistan would be around 4% in 2021-22 against the government’s claim of 5% GDP growth. The Fund also forewarned the government that inflation will “pick up this year before gradually slowing down.
According to IMF statement issued today, “The Executive Board also approved the authorities’ request for waivers of applicability and nonobservance of performance criteria,” the statement said.
“The economy is set to continue recovering in FY 2022, with real GDP growth projected at 4 per cent, while inflation is expected to pick up this year before gradually slowing down,” it said.
What would Pakistan have to do now
According to the IMF, Pakistan must maintain a floating exchange rate and use “prudent macroeconomic policy” (read high interest rate) to reduce the current account deficit.
The IMF said that although the economy was recovering, Pakistan “remains vulnerable to possible flare-ups of the pandemic, tighter international financial conditions, a rise in geopolitical tensions, as well as delayed implementation of structural reforms.”
In other words, Covid-19 can affect the recovery and no help could be expected from the international community while tensions on borders with India and Afghanistan may be a problem.
The Fund said that strong efforts were required to push economic reforms. The statement confirms the general perception that the private sector in Pakistan has been hit by government policies and the environment was not business-friendly.
It said that “increased focus is needed on measures to strengthen economic productivity, investment, and private sector development, as well as to address the challenges posed by climate change.”
Corruption is another issue flagged by the IMF, which also appreciated the ongoing efforts by the government.
“The authorities are focused on state-owned enterprises reform, fostering the business environment and reducing corruption, promoting financial inclusion.”
The Fund has also emphasized power sector reforms and this translates into a demand for more tariff hikes. The government has already pushed up tariffs to reach the November 2021 agreement with the IMF.
