Independent economists said that Pakistan government has put at stake its ability to raise funds from multilateral lenders by abandoning the loan program of International Monetary Fund, which will take a hard stance the next time Islamabad seeks help.
They added that the European debt crisis has already stretched the capacity of the IMF to bail out countries in financial distress, they said. Our being an ally in the war against terror will give little help if we need a loan again.
Mr Akbar Zaidi, a well known local economist, said that "We are lying to ourselves. We are saying that there is no need for another loan tranche but the truth is that IMF has refused to give us the money."
Pakistan has availed itself of USD 7.6 billion of the USD 11.3 billion IMF loan. Pakistan signed the loan agreement in 2008 to avert a balance of payments crisis and meet its international debt obligations.
For over a year, the government has tried to push through the reforms agreed with the IMF, including improvement of tax structure, filling gaps in the power sector and reduction in fiscal deficit. None of the targets was accomplished.
On the face of it, there seems little need for a loan right now as foreign exchange reserves of over USD 17 billion are enough to meet import payments of the next six months. The depreciation of rupee to record low has not caused a wild run for dollars either.
Mr Zaidi said that international community led by the United States has always come to Islamabad’s rescue with aid. He added that "But our leaders are not realizing that reforms are in our own interest. Look at the tax to GDP ratio, which has declined to 8.6%. Last two governments have used the issue of terrorism to gain international sympathy. We have been saying if you do not give us money, be prepared for more terrorist attacks. But sooner or later IMF and other donors will point out that we just bluff. And that will be the end of it!"
While external account position is comfortable, Pakistan starts paying off its loan from February 2012 with the first installment of USD 800 million. Recent floods have devastated large parts of Sindh where millions have become homeless and farmland has been destroyed. Calls for international aid have not resulted in major inflows as yet and analysts fear the fiscal deficit will balloon in the coming months.
Mr Sayem Ali, an economist at Standard Chartered Bank, said that oil remains the biggest worry. He added that "The dependence on oil has been increasing and a surge to, say, USD 120 per barrel will immediately result in draining our foreign exchange reserves."
He said that IMF has forced some of the leading economies including Spain, Greece and Italy to adopt austerity measures. He added that "Our failing to do the same is a bad sign and shows the lack of seriousness of the government."
He said that the State Bank of Pakistan has been without a governor for the past three months and the country has seen four finance ministers since 2008. He added that "It seems that the economy is not among priorities of the leaders. They have set their eyes on the elections only."
(Sourced from www.thenews.com.pk)
