IMF says bailout program to get Pakistan out of boom and bust cycle

In this file photo, the International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington, US, April 8, 2019. (REUTERS)
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Updated 24 December 2019

IMF says bailout program to get Pakistan out of boom and bust cycle

  • Pakistan met 6 performance criteria, missed 5 indicative targets — IMF report
  • Slow growth rate may spark agitation in the country, analysts

KARACHI: International Monetary Fund IMF on Tuesday said with the achievements of all the performance criteria set for the first quarter the fund’s bailout program now moves to the structural reforms to get the country out of boom and bust cycle.
“We see that the authorities remain strongly committed to all the objectives of the program. We are now at the stage in the program where we move to the area of structural reforms. These are really important to build an institutional framework for the country so that there is no repetition of the boom bust cycles of the past,” Ramirez Rigo, Mission Chief for Pakistan at International Monetary Fund, said in a conference call.
The IMF mission chief identified the three areas for continued progress that Pakistan needs to focus including the quality of the fiscal adjustment that will require continued work on the tax revenue side, energy sector reforms for more automaticity capacity implementation by legislation for National Electric Power Regulatory Authority (NEPRA), and the independence of central bank.
The fund on Monday released report of the first review of the bailout program under which it agreed to extend $6 billion to Pakistan. The IMF has documented progressed made by the authorities and revised targets including the revenue collection target for current fiscal year.
Islamabad had targeted Rs 5.5 trillion tax collection for the current fiscal year FY20 through Federal Board of Revenue FBR but the fund projects agency’s tax collection would be Rs 5.238 trillion, showing a reduction of Rs 265 billion.
The report highlights that the country has met around 6 performance criteria while two are continuous and the Islamabad has missed 5 indicative targets that include cumulative floor on targeted cash transfers spending Benazir Income Support Program (BISP) as only Rs 5 billion were released against target of Rs 45 billion.
Real GDP growth is projected at 2.4% in FY 2020, but net exports are now expected to provide a larger contribution to growth mainly due to greater import compression. Growth is projected to strengthen to around 3% in FY 2021, and 4.5–5% over the medium-term.
Average CPI inflation is projected to decelerate slightly to 11.8 percent in FY 2020 as administrative and energy tariff adjustments are expected to offset the effects from weak domestic demand.
The Fund views that the Pakistan has made progress on Anti-Money Laundering and Combating the Financing of Terrorism AML/CFT deficiencies, although much remains to be done. With assistance from capacity development providers (including the IMF), the authorities are committed to completing the actions in the structural benchmark by end-June 2020.
Analysts say the funds appraisal is positive for Pakistan though some targets were missed. “We believe overall IMF’s staff appraisal is positive, though some indicative targets were missed. In fact, on some accounts (like Net international reserves (NIR), Net Domestic Assets (NDA),budget deficit), the authorities have achieved over performance,” Muhammad Sohail, senior financial analysts and CEO of Topline Securities, said.
Economists say the fund has identified the important area where if the government fails to focus the situation may lead to agitation. “The IMF has reported that the job creation is need which has been hampered by the slowing growth. The fund has expressed its concerns that it could lead to agitation as you already see due to inflation. The solution they have provided is that they have suggested to increase the allocation for development spending to create more jobs,” Dr. Vaqar Ahmed, Joint Executive Director of Sustainable Development Policy Institute (SDPI), told Arab News.
The IMF will hold the next review of the bailout program from March 6, 2020 for the disbursement of another $452.4 million tranche.


‘Externally-supported elements’ major threat to Chinese companies in Pakistan — envoy

Updated 21 September 2020

‘Externally-supported elements’ major threat to Chinese companies in Pakistan — envoy

  • Outgoing Chinese Ambassador Yao Jing says China to collaborate with Pakistan’s interior ministry and police to ensure security of CPEC projects, workers
  • Says another major concern around CPEC was that Pakistani officials lacked expertise on how the Chinese government and companies operated

ISLAMABAD: Outgoing Chinese Ambassador to Pakistan Yao Jing has said the security of the China Pakistan Economic Corridor (CPEC) was a major ‘concern’ and Pakistan and China were working together, including through intelligence cooperation, to counter the designs of ‘externally-supported elements.”

CPEC has seen Beijing pledge over $60 billion for infrastructure projects in Pakistan, central to China’s wider Belt and Road Initiative (BRI) to develop land and sea trade routes in Asia and beyond.

In an interview with Pakistani newspaper Pakistan Today, the ambassador said the security of CPEC projects was one of the main topics discussed during a recent visit by Pakistani Foreign Minister Shah Mahmood Qureshi to Beijing.

“There are some externally-supported elements who are working against the China-Pakistan Economic Corridor; there have also been some terrorist attacks recently,” the ambassador said. 

“Such elements are a major security threat to Chinese companies working in Pakistan. However we are very grateful that the Pakistani government has adopted very comprehensive security plans for CPEC and the Chinese companies working on these projects.”

“The Strategic Security Division (SSD) has been established and just last year, they opened a new division called Southern Division. We are going to collaborate with law reinforcement department, basically ministry of interior and the police,” Yao added.

He said China and Pakistan were planning on having more local base stations to allow for a greater exchange of experience and collaboration, which would result in better capacity building of forces tasked to secure CPEC projects.

“We are also having some kind of police related capacities in different provinces, as well as jointly monitoring external elements who are detrimental to CPEC,” Yao said. “We are also having intelligence cooperation between Pakistan and China.”

The ambassador said another major concern around CPEC was that Pakistani officials lacked expertise on how the Chinese government and companies operate. 

CPEC was on the right track but Pakistan needed to appoint experts that knew the workings of the Chinese government and markets and could advice Pakistan on how to navigate these mechanisms, the ambassador said.

“CPEC is now well connected, much to the satisfaction of both sides,” he said. “The biggest concern if there is one is that Pakistani officials lack expertise on not just how the Chinese government works, but also how Chinese companies operate.”

“In China, for example, we have some experts that advise us on Pakistan’s functioning model. But there is a lot more to be done for Pakistani authorities to learn the functioning of Chinese markets and government,” Yao said. 

Last month, Pakistan approved its costliest project to date as part of the CPEC agreement, giving the go-ahead for a $6.8 billion project to upgrade its railway lines, known as Mainline-1 (ML-1), on a cost-sharing basis between Islamabad and Beijing. 

“ML-I is the biggest of our mega projects,” Yao said. “We were stuck for a while on this, but now we have made a breakthrough on it and we are moving on to the commercial part. Although the commercial loan issue remains yet to be settled, but it is in the process of being finalized between the two governments.”

“Hydropower stations are another example of some of the mega projects under CPEC,” he said. “We are currently working on two different hydropower projects, and even more are coming. Then of course there are other infrastructure projects like Motorway (M-6) and some highways construction in Balochistan, and expansion of the Karakoram Highway.”