Increasing energy prices, interest rates, tax collection remains IMF's focus
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Kristalina Georgieva notes Pakistan needs to faithfully execute stand-by arrangement
WASHINGTON (Dunya News) – International Monetary Fund (IMF) Managing Director Kristalina Georgieva stressed that Pakistan would have to accelerate structural reforms, as the world’s top financial institution’s executive board gave final approval to the $3 billion stand-by arrangement for the country.
According to Georgieva, these reforms are necessary for job creation and raising inclusive growth. The list includes building climate resilience, enhancing safety nets, strengthening governance – including of state-owned enterprises – and improving the business environment by creating a level-playing-field for investment and trade.
Talking about the challenges faced by the country, she said, “Pakistan’s economy was hit hard by significant shocks last year, notably the spill overs from the severe impacts of floods, the large volatility in commodity prices, and the tightening of external and domestic financing conditions.
“These factors together with uneven policy implementation under the EFF combined to halt the post-pandemic recovery, sharply increase inflation, and significantly depleted internal and external buffers,” the IMF said about the failure on the part of Pakistan to execute the previous programme which expired on June 30.
In a statement posted on the IMF website, Georgieva said the new stand-by arrangement, if implemented faithfully, offered Pakistan an opportunity to regain macroeconomic stability and address these imbalances through consistent policy implementation.
Praising the coalition government for the 2023-24 budget, she said it was a welcome step toward fiscal stabilization, while calling for enhancing tax collection, which, she said, was critical to strengthen public finances, and to eventually create the fiscal space needed to bolster social and development spending.
At the same time, she called for reducing state expenditure and bringing changes in the energy sector through steps like increase in tariff while modifying the subsidy structure.
“Maintaining discipline over non-critical primary expenditure will be essential to support budget execution within the envisaged envelope. In parallel, the authorities urgently need to strengthen energy sector viability by aligning tariffs with costs, reforming the sectors cost base, and better-targeting power subsidies."
“Looking beyond this fiscal year, enhanced efforts to expand the tax base and improve public financial management, including in the delivery of quality infrastructure, are needed and increase progressivity and efficiency.”
The IMF managing director also touched the subject of monetary tightening by praising the State Bank of Pakistan (SBP) for interest rate hikes.
“The recent increase in the policy rate by the SBP is appropriate given the very high inflationary pressures, which disproportionately impact the most vulnerable. A continued tight, proactive, and data-driven monetary policy is warranted going forward.”
She also repeated the IMF stance that the government shouldn’t intervene to check the rupee value, saying. “A market-determined exchange rate is also critical to absorbing external shocks, reducing external imbalances, and restoring growth, competitiveness, and buffers. Close oversight of the banking system and decisive action to address undercapitalized financial institutions would support financial stability.”
