In a report released earlier yesterday, the donor agency also warned that domestic sectarian violence and the continuing insurgency at Afghan border might deteriorate the security situation in the medium term, ultimately disrupting economic activities and increasing military spending.
The IMF’s fresh assessment about security conditions and government’s commitment to reforms has come at a critical juncture.
Security analysts fear sectarian tensions in the region may rise following the souring of diplomatic ties between Saudi Arabia and Iran. Political commitment to reforms has also weakened in recent weeks as Prime Minister Nawaz Sharif completes his half term.
The IMF report showed that there was medium- to high-scale risk of deterioration of security conditions. “The continued insurgency at the Afghanistan border, possible retaliation against ongoing security operations and domestic sectarian violence may increase security concerns,” the agency wrote in its Risk Assessment Matrix. This deterioration may erode investor confidence, disrupt economic activities and increase military spending, overburdening the budget.
The IMF warned about a medium-scale risk of slippages in policy implementation due to disagreement on priorities, the government’s lack of majority in Senate and court rulings.
“Slowdown or suspension of fiscal consolidation and key energy and other structural reforms can reverse recent stability gains and affect potential growth,” the report stated, calling for accelerated implementation of the privatisation agenda for loss-making public enterprises and completing the energy sector reform.
“The structural reforms process is not something that begins and ends, as it is a continued process,” said Harald Finger, the IMF’s Washington-based mission chief, while addressing the media through a video link from the United States.
He, however, appeared to endorse delays in privatisation of Pakistan International Airlines, Pakistan Steel Mills, and power generation and distribution companies. “We do think the government is committed to keeping the momentum of reforms going,” he said. “Strategic privatisation is a complex process and needs to be done right.”
Finger recommended strategic privatisation should not be rushed. “It’s better to do it right than do it quickly.”
He admitted since parliament was discussing the PIA sell-off, its privatisation process was not possible in the near future.
The government has already missed the December 31 deadline to invite investors for selling stakes in the national flag carrier.
Tax amnesty
Finger’s response was mixed to an under-discussion amnesty scheme. He said Pakistan’s national experience indicated that tax amnesty schemes undermine tax compliance, weaken revenue collection and create expectations for further reprieves.
He added the current agreement with traders should be implemented in a way that minimises these risks.
Finger also sought transparency in the China-Pakistan Economic Corridor deals, said to be worth $46 billion of investment on debt. “The details and terms are evolving. We believe it is important that information on contracts is provided transparently as soon as it emerges so we can factor in,” he added.
