Key reforms Pakistan needs to undertake for a new medium-term IMF program

A woman walks past the International Monetary Fund (IMF) logo at its headquarters in Washington DC, United States, on May 10, 2018. (REUTERS)
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Updated 20 March 2024
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Key reforms Pakistan needs to undertake for a new medium-term IMF program

  • Reforms include improving tax administration, restoring viability of energy sector and adopting market-drive exchange rate
  • Pakistan reached staff-level agreement with the International Monetary Fund which will help Islamabad secure $1.1 billion

KARACHI: Pakistan and the International Monetary Fund (IMF) on Wednesday reached a staff level agreement (SLA) on the second and final review of Pakistan’s bailout program, which will release $1.1 billion for the debt-ridden South Asian economy. 

Since the $3 billion bailout was approved in June last year, Pakistan has implemented several IMF-mandated reforms, such as budget adjustments, increasing interest rates, and higher energy prices.

A caretaker government was given unprecedented powers to make necessary economic policy decisions, oversee reforms and the release of funds, without fear of political backlash. With the current program concluding on April 11, Pakistani officials are considering a new medium-term program with the IMF.

In addition to meeting continuous targets, the IMF has identified the following reforms for Pakistan to undertake:

STRENGTHENING PUBLIC FINANCES

Pakistan has been tasked with gradual fiscal consolidation, broadening the existing tax base, improving tax administration, and debt sustainability, all while protecting the vulnerable.

Pakistan has to meet a primary budget deficit target of 401 billion rupees ($1.44 billion), or 0.4 percent of gross domestic product, for the current fiscal year before the government presents its budget in June. 

In a media brief in December 2023, the Federal Board of Revenue (FBR) said Pakistan had a “very narrow tax base” of around 5.2 million people in 2022, out of a population of 240 million people.

The FBR said it plans to add 1.5 million new taxpayers to the existing base during the current fiscal year.

RESTORING THE VIABILITY OF THE ENERGY SECTOR 

Pakistan was told to prevent further accumulation of circular debt in its power sector, arising from subsidies and unpaid bills.

It needs to implement reforms to reduce costs by improving electricity transmission and distribution, moving captive power into the grid, improving governance, and combating theft.

Additionally, Pakistan should maintain power and gas tariffs at levels that ensure cost recovery, with adjustments made to safeguard the financially vulnerable, through existing progressive tariff structures.

In a report released in January, the IMF noted Pakistan missed its target for power sector arrears, largely due to lower-than-expected recoveries and tariffs.

CUTTING INFLATION 

Pakistan has faced significant inflation challenges, hitting a peak of 38 percent last May, partly influenced by tax measures to meet IMF requirements. 

The inflation rate has since eased, with the consumer price index rising 23.1 percent year-on-year in February, the lowest increase since June 2022, partly due to a high base effect. 

On Monday, the central bank maintained interest rates at a record high of 22 percent for a sixth consecutive time due to ongoing inflation risks. In January, the central bank adjusted its forecast for average inflation this fiscal year to 23 percent-25 percent, up from 20 percent-22 percent, amid rising energy costs.

FOREX MARKET REFORMS 

The IMF recommended that Pakistan adopt a market-driven exchange rate to help balance external accounts and rebuild foreign reserves. It asks for more transparency and flexibility in the market.

On Monday, Pakistan’s central bank chief anticipated a $2 billion debt rollover this week, with an additional $4 billion expected by June, which would bolster the country’s reserve position, with an import cover of just over 1.6 months. 

To meet IMF conditions, Pakistan’s military and central bank cracked down on black market operations in September.

The IMF asked that the difference between interbank and open market rates should not breach 1.25 percent before the release of a second tranche of funds under the bailout.

PROMOTING THE PRIVATE SECTOR

The IMF said the suggested reforms could stimulate private sector growth in Pakistan, but said further protections that distort the market need to be removed. 

The IMF suggests enhancing reforms for State-Owned Enterprises (SOEs) to define ownership and government roles more clearly.

Since elections in February, Pakistan has a new parliament which has the power to amend the SOE act. In September, the caretaker government identified 10 SOEs to be privatized, or improved.

($1 = 278.2500 Pakistani rupees)


Pakistan throws weight behind full UN membership for Palestine, urges Security Council action

Updated 9 sec ago
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Pakistan throws weight behind full UN membership for Palestine, urges Security Council action

  • UNGA last week overwhelmingly backed Palestinian bid to become full member by recognizing it was qualified to join
  • Palestinian push for full UN membership comes seven months into war between Israel and Hamas in the Gaza Strip

KARACHI: Pakistan has expressed support for a “historic” call by the United Nations General Assembly (UNGA) to admit the state of Palestine as a full member, the Foreign Office (FO) in Islamabad said on Friday, urging the UN Security Council to decide the matter “favorably.”

The UNGA last week overwhelmingly backed a Palestinian bid to become a full UN member by recognizing it was qualified to join and recommending the UNSC “reconsider the matter favorably.” The vote by the 193-member General Assembly was a global survey of support for the Palestinian bid to become a full UN member — a move that would effectively recognize a Palestinian state — after the United States vetoed it in the UN Security Council last month.

“Pakistan supports the historic call made by the UN general assembly made at the 10th emergency session to admit the state of Palestine as a full member,” FO spokesperson Mumtaz Zahra Baloch told reporters at a weekly press briefing.

“The resolution determined that the state of Palestine is qualified for membership of the UN and recommended the security council to decide the matter favorably.”

Baloch said the UNSC had been provided another opportunity to lift its objections to the admission of Palestine to the UN and “restore the credibility of the assurances that have been given in support of the two-state solution.”

The Palestinian push for full UN membership comes seven months into a war between Israel and Palestinian group Hamas in the Gaza Strip, and as Israel is expanding settlements in the occupied West Bank, which the UN considers illegal.

Palestinian health authorities say Israel’s ground and air campaign in Gaza has killed more than 35,000 people, mostly civilians after the war broke on Oct 7 when Hamas fighters stormed across the border into Israel.

Pakistan does not recognize the state of Israel and calls for an independent Palestinian state based on internationally agreed parameters and the pre-1967 borders with Al-Quds Al-Sharif as its capital.


Suspected militants bomb second girls school in a month in northwest Pakistan

Updated 17 min 19 sec ago
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Suspected militants bomb second girls school in a month in northwest Pakistan

  • The attack damaged part of the facility in South Waziristan, however, no one was injured in its wake
  • Though nobody claimed responsibility for the bombing, suspicion is likely to fall on the Pakistani Taliban

PESHAWAR: Suspected militants blew up another school for girls in a former stronghold of the Pakistani Taliban in Pakistan’s northwestern Khyber Pakhtunkhwa province, police and residents said on Friday.
The attack happened in the South Waziristan district that borders Afghanistan. It was the second one this month after another school was badly damaged in the region, according to district police Spokesman Habib Islam.
The overnight attack damaged one room of the facility, however, no one was hurt in its wake.
“A loud bang was heard in the night and police found early morning that a newly built girls’ school in Karikot, a village close to district headquarters of Wana City, was damaged in the explosion,” Islam told Arab News.
No one immediately claimed responsibility for bombing the school, but suspicion was likely to fall on the Pakistani Taliban, who have targeted girls’ schools in the province in the past.
A police officer from Wana said the management of the damaged school had received several threats in the past.
Jalal Wazir, general secretary of the Wana Welfare Association, regretted the bombing and said education was of “paramount importance” to beat illiteracy in the region.
“We can’t compete in today’s world if our girls are left uneducated,” Wazir said. “We will work to promote women education because if you educate a single girl, you educate an entire family.”
On May 9, unidentified militants had blown up a girls’ school on the outskirts of Miran Shah city in the neighboring North Waziristan district, prompting Prime Minister Shehbaz Sharif to direct authorities to immediately rebuild the damaged facility.
In May last year, two girls’ schools were blown up in the Mir Ali area of the North Waziristan district.
Pakistan witnessed multiple attacks on girls’ schools until 2019, especially in the Swat Valley and elsewhere in the northwest where the Pakistani Taliban long controlled the former tribal regions. In 2012, the insurgents attacked Malala Yousafzai, a teenage student and advocate for the education of girls who went on to win the Nobel Peace Prize.


Pakistan says will accelerate progress on major connectivity projects with China

Updated 17 May 2024
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Pakistan says will accelerate progress on major connectivity projects with China

  • The understanding to this effect was reached during Pakistan Deputy Prime Minister Ishaq Dar’s visit to China
  • The visit comes amid Pakistan’s push for foreign investment, with Islamabad seeing flurry of high-level exchanges

ISLAMABAD: Pakistan and China have resolved to accelerate progress on major connectivity projects and strengthen cooperation in multiple fields, Pakistan’s Foreign Office said on Friday, amid an increase in bilateral engagements with longtime ally Beijing to boost foreign investment in Pakistan.
The understanding to this effect was reached during Pakistan Deputy Prime Minister Ishaq Dar’s ongoing visit to China, where he met Chinese Foreign Minister Wang Yi and other top officials.
Beijing has been one of Islamabad’s most reliable foreign partners in recent years and has invested over $65 billion in energy and infrastructure projects as part of the China-Pakistan Economic Corridor (CPEC).
The project, part of President Xi Jinping’s ambitious Belt and Road Initiative, aims to connect China to the Arabian Sea via a network of roads, railways, pipelines and ports in Pakistan, and help Islamabad expand and modernize its economy.
“The two sides will work together to forge an upgraded version of CPEC by jointly building a growth corridor, a livelihood enhancing corridor, an innovation corridor, a green corridor by aligning them with Pakistan’s development framework and priorities,” said Mumtaz Zahra Baloch, a Pakistan foreign office spokeswoman, while briefing reporters on Dar’s visit.
“Together we will accelerate progress on major connectivity projects, including upgradation of ML-1 (Main Line-1), the Gwadar port, realignment of KKH (Karakoram Highway) phase-2, strengthen cooperation in agriculture, industrial parks, mining and information technology.”
The $6.8 billion ML-1 project is aimed at upgrading and dualizing the 1,872-kilometer existing railway track from the southern Pakistani port city of Karachi till Peshawar in the country’s northwest, while the port in Pakistan’s southwestern Gwadar city lies at the heart of CPEC.
Dar’s visit comes amid Pakistan’s recent push for foreign investment, with Islamabad seeing a flurry of high-level exchanges from diplomats and business delegations in recent weeks from Saudi Arabia, Japan, Azerbaijan, Qatar and other countries.
Earlier in the day, Prime Minister Shehbaz Sharif’s office said the premier had invited a Chinese research and investment firm, MCC Tongsin Resources, to invest in Pakistan’s mining sector and assured it of “maximum facilitation.” The statement came after Sharif’s meeting with a delegation of MCC Tongsin Resources, led by Chairman Wang Jaichen, in the federal capital of Islamabad.
“The government is taking steps on priority basis to increase foreign investment in the country,” Sharif was quoted as saying by his office. “In order to increase the exports of Pakistan, investment for the extraction of minerals, their processing and export will be fully facilitated.”
Sharif has vowed to rid the country of its chronic macroeconomic crisis through foreign investment and efficient handling of the economy.


Pakistani Hajj pilgrims to leave for Makkah today from Madinah via 11 caravans 

Updated 17 May 2024
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Pakistani Hajj pilgrims to leave for Makkah today from Madinah via 11 caravans 

  • Over 20,000 Pakistani pilgrims have so far arrived in Madinah under the government scheme
  • Eleven caravans carrying 2,177 Pakistani pilgrims will leave for Makkah after Friday prayers

ISLAMABAD: Minister for Religious Affairs Chaudhry Salik Hussain on Friday visited the office of the National Adillah Establishment in Madinah to discuss travel arrangements for over 2,000 Pakistani pilgrims who will leave for Makkah today ahead of the Hajj pilgrimage, APP reported.
The National Adillah Establishment is the Saudi agency in charge of coordinating all pilgrim activities in Madinah, including passport collection, departure of pilgrims from Madinah to Makkah, visit to Riazul Jannah, accommodation and transport facilities. As part of the Hajj 2024 policy, there is an agreement on arrangements and requirements of Hujjaj between the National Adillah Establishment and the Office of Pilgrim’s Affairs Pakistan (OPAP).
Pakistan has a Hajj quota of 179,210 pilgrims this year, of which 63,805 people will perform the pilgrimage under the government scheme while the rest will use private tour operators. This year’s Hajj is expected to run from June 14-19.
Pakistani pilgrims have been arriving in Madinah since May 9 when pre-Hajj flight operations were launched. Over 20,000 Pakistani pilgrims have so far arrived in Madinah under the government scheme. Eleven caravans carrying 2,177 Pakistani pilgrims who stayed eight days in Madinah will leave today, Friday, for Makkah after Friday prayers, Radio Pakistan reported. 
In his meeting with Adillah officials, Salik discussed Hajj-related matters “particularly the departure of ‘advanced caravans’ of Pakistani pilgrims today from Madinah to Makkah.”
“This year’s pilgrimage will be one of the best experiences, better management-wise,” Pakistan’s APP news agency quoted the CEO of Adillah, Esam Damyati, as telling Salik. 
Salik thanked Damyati for extending all possible assistance and cooperation to the Religious Affairs Ministry and Pakistan Hajj Mission in its Hajj operation. 
“Salik said the digitization of Hajj related services by the Saudi authorities had really worked in improving the Hajj arrangements,” APP said. “He appreciated the Saudi government for taking a number of innovative measures like formation of new companies, increasing number of Hajj welfare staff both male and female and use of latest technology.”
Adillah’s Head of Investment Management Ahmed Hammad said the company was keen to explore ways to enhance investment in Hajj-related matters with the Ministry of Religious Affairs and the Pakistan Hajj Mission.


X ban enters fourth month in Pakistan

Updated 17 May 2024
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X ban enters fourth month in Pakistan

  • Pakistan has long struggled to regulate social media through different legislations, prompting critics to accuse it of trying to quell dissent
  • The Government of Pakistan must ‘uphold the right to freedom of expression,’ restore access to X immediately, Amnesty International says

ISLAMABAD: X remained restricted in Pakistan on Friday as a ban on the social media platform entered fourth month, according to netizens.
Authorities have blocked X, formerly known as Twitter, since Feb. 17 after protests swept the country over allegations of vote rigging in a general election.
Digital rights activists and rights groups have described the shutdown, either partial or full, as a “violation” of civil liberties in the South Asian nation of more than 241 million.
“This ban continues at a time when the government has announced legislative proposals to further restrict digital freedoms,” Amnesty International, a global human rights watchdog, said on X.
Pakistani authorities have long struggled to regulate social media content through different legislations, prompting critics to accuse them of trying to quell dissent. Earlier this month, the government notified a National Cybercrimes Investigation Agency (NCCIA) to probe electronic crimes, making digital rights activists describe it as yet another official attempt to stifle criticism online.
The NCCIA was approved by the caretaker government of Prime Minister Anwar-ul-Haq Kakar last year to take over cybercrime investigations from the Federal Investigation Agency (FIA).
While the government says the move was meant to protect digital rights of millions of users, encourage responsible Internet use and prevent hate speech and disinformation, digital rights activists say successive governments have drafted new laws or amended old ones to curb online dissent and file criminal charges against journalists and activists to restrict freedom of speech and expression.
“The Government of Pakistan must uphold the right to freedom of expression and restore access to the platform [X] immediately,” Amnesty International added.