Pakistan: ''' Approaching IMF ''

The fear that Islamabad will eventually approach the International Monetary Fund for yet another bail-out package have finally come true because Pakistan has decided to again approach the world body as the only option to replenish its dwindling foreign exchange reserves and widening budget deficit. A six-member delegation, including the State Bank of Pakistan governor and chairman of the Federal Board of Revenue, will enter into technical talks with the International Monetary Fund for a $5-7.5 billion package. The delegation will, between April 17 and 22, also negotiate with the United States treasury department for the next tranche of Coalition Support Fund. Pakistan has estimated the CSF at $ 2.52 billion and Washington has accounted this to be $1.5 billion. With the US authorities showing willingness to disburse fresh CSF to Pakistan, an agreement between the two figures seems on the card during the Pakistan delegation visit to Washington. The talks will be held on the sidelines of annual spring meeting of the World Bank and IMF. The three-day meeting is scheduled to begin on April 19. A critical picture of Pakistan's economy was portrayed by the State Bank of Pakistan which reported last week that the country's foreign exchange reserves are rapidly falling and budget deficit gap is also widening. The central bank said that foreign exchange reserves had declined from $8.7bn, at the end of January, to $6.7bn on April 5, mainly due to debt repayments. The balance of payment position continues to be driven by low financial inflows and high debt repayments as net capital inflow of $34m in first eight months were not sufficient to finance external current account deficit of $700m. It said the current account deficit was expected to widen in the remaining two months and the net capital and financial flows were not likely to increase considerably. This pressure on the national economy was hard to be eased out unless fresh income flows were generated. The caretaker government, realizing the economic situation, reluctantly decided to go for another IMF bailout out package, the third since 2007-08, because no other option was apparently available. What is, however, feared at this stage is that the IMF would impose stricter conditions for the next package than before as the world body has been showing its displeasure on Pakistani authorities failing, owing to political reasons, in enforcing a general sales tax, withdrawal of subsidies in the power and agricultural sectors, structural reforms to put the macroeconomic framework in order over the next few years and many more. As beggars are no choosers, Islamabad might this time assure the IMF to meet its condition in the absence of another alternate. Nevertheless, if GST is placed in action, Pakistan may achieve the long standing objective of documentation of the national economy that would ultimately bring the affluent trading community and the country's elite into the tax net. Pakistan has since repaid a total $8.3 billion of the remaining IMF loan and is required to pay another $840 million during the current fiscal year. The remaining amount of $5.3bn would have to be repaid over the next two years. The IMF is least satisfied with Pakistan's ability to retire its debt and this may serve as instrumental for the country getting another bailout package. Another factor favouring Pakistan is the increase of remittances from Pakistanis abroad which have been growing since 2006 and have touched a figure of approximately $20 billion. Promising trend has also been witnessed in the country's exports mainly due to the major contribution by the textile sector that swelled by a robust 36 per cent in the first 10 months of the current fiscal. Except for these areas none other external inflows showed up in the federal budget for 2012-13. This poses a serious challenge to the economy. The main area of shortfalls remains the failure of the Federal Board of Revenue in meeting targets. The FBR is, however, unlikely to achieve the annual revenue collection target of Rs 2.3 trillion revenue collection as is manifest from a robust shortfall that stood at of more than Rs 60 billion in first four months of the year 2012-13. This area has been a permanent worry for the country's economic managers because the FBR is infested with rampant corruption and bureaucratic lethargy. Exactly this is the area of concern for the IMF which wants the country's elite to be taxed. The world body is all likely to enter into a new arrangement with Islamabad but effective measures to boost the tax recovery regime have to be taken but, for all practical purposes, tax collection is a victim of political expediency.