IMF demands Pakistan reforms

10/10/2010 | Liz Chong

The IMF yesterday challenged the Pakistani government to show commitment to helping 20 million people who are struggling to get by in the aftermath of devastating floods

“International financial institutions and the donors stand by to help Pakistan,” Adnan Mazarei, director for Pakistan at the IMF, said. “The extent to which they are willing and able to support the authorities depends on how well the authorities in Pakistan also take care of the Pakistani people.”

Mazarei, who negotiated the IMF’s $11.3 billion loan with Pakistan, said the government had to move quickly to reassure the donor community and the IMF that it was committed to transparency in the use of aid for the floods, as well as reforms that have been due for several years.

These centre on the introduction of a sales tax and the need for agreement with the World Bank and Asian Development Bank on $2 billion of subsidies for the energy sector.

Mazarei warned the Pakistanis to review their spending on “things that need to be reconsidered”, such as subsidies to the national airline and steel companies.

“These issues have been on the plate for a couple of years and to be honest, well before the programme,” Mazarei said. “It is time to move forward. Action is needed quickly to move forward with reconstruction.”

The IMF granted Pakistan its loan in 2008 to help the country avoid a default on its foreign debt. In July this year it missed a deadline for the introduction of the sales tax, which has little political support.

Tax currently accounts for just under 10% of GDP. The loan is due to expire at the end of this year but Mazarei said it could be extended “to the extent that the Pakistani government take the measures that are needed.”

In recent weeks, the World Bank, the US, Japan, the UK and the UN have pressured Pakistan to improve transparency of aid expenditure, and to raise money through taxes. Just 1% of the Pakistani population now pay taxes.

The government is also struggling with a recent challenge by the army, which was reflected in a public rebuke of President Asif Zardari by army chief General Ashfaq Parvez Kayani.

Zardari also faces pressure from the Supreme Court, which is due on 13 October to rule on a challenge to an amnesty law that some contend illegally shielded Zardari and thousands of former and current officials from corruption cases.

The Chief Justice has warned the Prime Minister over his defiance of a court order demanding that he write a letter to Swiss authorities requesting they reopen a moneylaundering case involving Zardari. Legal experts say he could be found in contempt of court.

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