ISLAMABAD: The $6 billion loan package for Pakistan approved by the International Monetary Fund last week will require “very ambitious” fiscal measures and sustained commitment for the bailout to succeed, IMF officials said on Monday.
The three-year agreement approved by the IMF board last week, Pakistan’s 13th bailout since the late 1980s, has seen a sharp drop in the value of the rupee currency after the central bank agreed to a “flexible, market-determined exchange rate.”
It also foresees structural economic reforms and a widening of the tax base to boost tax revenues that are currently estimated to account for less than 13% of gross domestic product (GDP) by 4-5 percentage points.
With slowing growth, a budget deficit which has climbed to more than 7% of GDP and currency reserves of less than $8 billion, or enough to cover 1.7 months of imports, Pakistan has teetered on the edge of a debt and balance of payments crisis.
Ernesto Ramirez Rigo, the Fund’s mission chief for Pakistan said the program targets were tough but Prime Minister Imran Khan’s government, which came to power last year vowing not to turn to the IMF, was committed.
“We certainly think that debt sustainability under the program will be assured,” he told a conference call with reporters, adding that it would require “very ambitious” fiscal consolidation, mainly through improved revenue collection.
Pakistan has a notoriously narrow tax base, with less than 1% of its 208 million population filing income tax returns, a vast informal economy and several key sectors of the official economy largely exempt from tax.
The IMF loan and the associated package of reforms that goes with it will unlock another $38 billion in loans from other international partners but commitment by Pakistani authorities in pushing through reform was essential, Ramirez Rigo said.
“Consistency and sustained implementation is key.”
The 2020 budget, passed last month, approved tax measures worth some 1.7% of GDP to help cut the deficit and Pakistan has promised a multiyear effort to overhaul its tax and budget system to put its public finances on a firmer footing.
A central part of the program will involve cleaning up accumulated debts in the power and gas sectors and in loss-making state enterprises including Pakistan International Airlines, Pakistan Steel Mills, and Pakistan Railways.
Losses built up in the power sector now amount to the equivalent of 4% of GDP, posing a serious fiscal risk, while losses in the big three state enterprises amount to 2% of GDP, the IMF said in a report on the package.
The tough conditions of the package, which has already seen interest rates hiked by 150 basis points and which will see a raft of tax loopholes closed, has already drawn resentment among households facing inflation running at around 9%.
Ramirez Rigo said there was a risk that the difficulties of implementing some of the policies in the package were “more complicated than we have assumed” and that there would be problems in building consensus behind the reforms.
He also said any sharp rise in oil prices could unbalance the reform drive given Pakistan’s heavy dependence on imported energy.
IMF says Pakistan bailout sets ambitious fiscal targets
IMF says Pakistan bailout sets ambitious fiscal targets
- The Fund says the program targets are tough but PM Khan’s government is committed
- IMF official says any sharp rise in oil prices could unbalance the reform drive given Pakistan’s heavy dependence on imported energy
Islamabad facilitating thousands of stranded Pakistanis in Gulf amid Iran conflict, FM says
- Pakistani religious pilgrims, visitors are being evacuated via land routes due to airspace shutdowns
- Foreign Minister Ishaq Dar says ‘our consistent message is de-escalation, restraint and return to dialogue’
ISLAMABAD: Pakistan’s Foreign Minister Ishaq Dar on Tuesday said that Islamabad was working round the clock to assist thousands of Pakistanis stranded in Arab Gulf countries, reiterating his country’s readiness to facilitate diplomatic efforts to de-escalate tensions in the Middle East.
Tensions in the region heightened on Saturday following coordinated strikes by the US and Israel against Iran, diminishing prospects of a peaceful settlement of Tehran’s long-running dispute with Western countries and Tel Aviv over its nuclear program.
Tehran subsequently targeted American bases in Gulf states, including the UAE, Bahrain, Qatar, Kuwait and Jordan, prompting their governments to issue condemnations. The Saudi foreign ministry on Tuesday condemned Iran’s drone attack on the US embassy building in Riyadh.
Describing the Gulf situation as “very fluid,” Dar said regional airspace shutdowns had forced Pakistani religious pilgrims and visitors in Gulf states, also home to 4.5 million Pakistani expatriates, to mostly rely on land routes for their exit.
“The safety of Pakistanis abroad and the sovereignty of Pakistan remain our foremost priorities... Our crisis management unit is operational 24 hours to facilitate the stranded Pakistanis,” he said at a media briefing in Islamabad on Tuesday, adding that Pakistani missions in Tehran, Zahedan, Mashhad, Riyadh, Jeddah, Abu Dhabi, Dubai, Doha, Kuwait City and Manama were actively assisting nationals.
“If someone’s visa is expiring, as a visitor, they’re are getting fully cooperated. Similarly, if people are transiting from Saudi Arabia to other countries by road, then the other Gulf countries are also facilitating and helping them.”
Around 35,000 Pakistanis were currently in Iran and evacuation through Azerbaijan remained another viable option for those in northern Iran. So far, 64 Pakistanis have crossed into Azerbaijan, with dozens already flown onward, including 42 who reached Lahore on March 2, according to Dar.
Flights between Pakistan and Azerbaijan remain operational and Baku is providing visa-on-arrival and logistical support to stranded Pakistani nationals.
Dar said 4,543 Pakistani visitors were stranded in the UAE and around 1,400 in Qatar due to the conflict and airspace disruptions, adding that Saudi Arabia, home to more than 2 million Pakistani expatriates, remained relatively stable, with partial air operations continuing via Oman.
Land corridors between Saudi Arabia, Bahrain, UAE and Qatar were being widely used and travelers were being allowed to transit by road, he said, thanking authorities in these countries for facilitating Pakistani nationals.
ISLAMABAD’S DIPLOMATIC EFFORTS FOR PEACE
The foreign minister said he had been in contact with foreign ministers from Turkiye, Iran, Saudi Arabia, Qatar, UAE and Oman as well as European Union representatives over the past three days to help de-escalate the tensions.
“Our consistent message is de-escalation, restraint and return to dialogue,” he said.
Prime Minister Shehbaz Sharif is personally overseeing the situation and has convened Pakistani parliamentary leaders from all parties for a detailed briefing, he added.
In discussions involving US Secretary of State Marco Rubio prior to the US-Israeli strikes, Dar said, both Oman and Islamabad had been considered potential venues for US-Iran talks and Pakistan had conveyed that it was “fully ready” to host negotiations.
“Islamabad is available for any mediation or facilitation,” he said, adding that Pakistan’s policy did not support a regime change in Iran and focused solely on dialogue and regional stability.
