Pakistans finance chief has sharply rebutted claims
that his government has lost the impetus for economic reforms
and is backsliding on commitments under an IMF agreement.
In an interview yesterday with Emerging Markets,
Shaukat Tarin, finance adviser to the prime minister, said
Pakistan is on track to meet its fiscal deficit targets
bolstered by international donor support.
He added that the government has resolved to bring down the
fiscal deficit to 3.4% this year. Were sticking to
that and we will frankly do that, he said.
He cited the fact that whereas the 2007/8 fiscal deficit was
7.6% of GDP, it dropped to 5.2% the previous year. He said this
years target was achievable with or without
I dont understand why people get the idea that
we are truncating our stabilization programme. We are following
it, and following it vigorously, he said.
Tarins comments follow allegations that the government
has lost its grip on economic policy, in the wake of the
IMFs $11 billion programme.
Ashfaque Khan, a former economic adviser to the finance
ministry wrote in Emerging Markets last Sunday that
the government has embarked on an expansionary fiscal
policy and a relatively easy monetary policy a
stance that was not viable at all in the
face of high fiscal and current account deficits as well as the
rising price of oil.
But Tarin shot back that finance officials would hold fast
on critical reforms. How can people say were going
to abandon that? Were not going to abandon caution
because we have achieved stability, with a lot of pain for the
people of this country. Were not going to throw this away
for short term gains.
Structural tax reforms will have boosted revenues a
key goal of its reform efforts from 8.8% of GDP in 2008
to 10.6% this year, Tarin said. The government plans to
introduce VAT next year.
He added that the government is making headway in reforming
the inefficient power sector, which has been a major drag on
the economy in recent years.
Moreover, Pakistans central bank last week kept its
benchmark interest rate unchanged at 13%, waiting to see if two
cuts earlier this year are enough to revive economic growth.
All these things are happening, Tarin said.
Khan slammed the IMF for having allowed its resources
to be used for budgetary reasons instead of balance of payments
support. This is a major departure from the past it is
as if the IMF has changed its religion.
He described the Fund programme as being
extraordinarily benign asking for little reforms
and with a generous waiver for non-observance of performance
criteria. But Tarin said that none of the IMF money
is being used for budgetary support.
He noted that $1.2 billion of funds lent by the IMF in
August under a $3.2 billion augmentation to last
Novembers $7.6 standby agreement could be used
on a temporary basis as a bridge, but that
forthcoming donor pledges would plug the gap. When we get
the money [from donors] well put it in the central
bank. But he added: Weve got to spend money
on poverty reduction.
Pakistan has so far failed to tap any of the $5.28
billion over three years pledged by donors at a so-called
Friends of Democratic Pakistan (FODP) in Tokyo in April. But
Tarin said that we have firmed up these commitments in
the past two months and expects at least $1.8 billion by