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IMF blasts Pakistan budget, signalling bailout may not happen

IMF blasts Pakistan budget, signalling bailout may not happen
(Photo: Andrew Harrer / Bloomberg via Getty Images

The International Monetary Fund criticised the Pakistan government’s budget as insufficient to meet the goals of its bailout programme, a sign that a deadline this month to unlock aid will not be met. The nation’s dollar bonds declined.

The tax policies in the new budget, unveiled last week, miss “an opportunity to broaden the tax base in a more progressive way, and the long list of new tax expenditures reduces further the fairness of the tax system,” Esther Perez Ruiz, the IMF’s resident representative in Pakistan, said in a statement.

“The new tax amnesty runs against the programme’s conditionality and governance agenda and creates a damaging precedent,” she said. The IMF is ready to work with Pakistani authorities to refine the budget ahead of its passage.

The criticism from the Washington-based lender comes as a 30 June deadline nears for the latest review of a $6.7-billion loan programme. While the government has pledged to meet billions of debt obligations, payment risks are growing with Moody’s Investors Service this week saying Pakistan could default without an IMF programme.

“It’s looking increasingly unlikely that Pakistan will secure IMF funding before the current programme expires,” said Patrick Curran, a senior economist at Tellimer based in Portland, Maine. “A default is likely if Pakistan cannot quickly reach a new agreement with the IMF in the next few months.”

Bond pressure

The country’s $1-billion bond due in April next year edged lower to about 55 cents on the dollar in Asian trading on Thursday, the lowest in almost two weeks. The South Asian nation faces about $23-billion of external debt payments for the fiscal year which starts in July.

Pakistani officials defended the budget, saying the government is seeking some respite to support the economic recovery.

“We don’t want to take any such step that drags us away from stabilisation,” Junior Finance Minister Aisha Ghaus Pasha told reporters in Islamabad on Wednesday. “While remaining within stabilisation mode, we seek a breathing space” to bolster economic growth, she said.

Aid has been on hold as the IMF seeks stronger fiscal policies, which are proving politically challenging with elections expected later this year. Meeting a financing gap of $2-billion and refining the exchange-rate policy are also among the biggest hurdles. 

“This budget is clearly unacceptable to the IMF,” said Uzair Younus, a director of the Pakistan Initiative at the Atlantic Council’s South Asia Center. “Given political exigencies in Islamabad, it will be very difficult for the government to meet the IMF’s expectations with days to go before the programme is over.” DM

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