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ISLAMABAD: The International Monetary Fund urged Pakistan on Thursday to shift its growth model away from the government’s pivotal role in economic decision-making to an emphasis on lowering trade barriers in order to stimulate production.
The suggestions came from Esther Pérez Ruiz, the IMF resident representative for Pakistan, during an interaction at the Sustainable Development Policy Institute (SDPI) with a select group of civil society where the post-Stand-By Arrangement (SBA) of 2023 and key features of the recently approved Extended Fund Facility (EFF) came under discussion.
Ms Esther spoke for the first time about Pakistan’s $7 billion EFF programme after the Fund’s executive board approved it last month. Esther, who has been making presentations on this country’s economy since 2013, dwelt at length on the government’s inaction that resulted in economic sluggishness and the highest inflation rate ever.
The IMF country representative began her presentation by clarifying that Pakistan has embarked on its 21st Fund programme, and not the 25th as reported earlier. Several one-time assistance packages were also reckoned mistakenly as “IMF programme”, she added.
Esther Ruiz says economy has shown signs of some improvement
Ms Esther said that after the launch of SBA programme in July last year, confidence in policymaking has improved, with inflation plummeting to its lowest level in three years. “Foreign exchange reserves have more than doubled and the economy is showing signs of improvement.”
Esther Perez Ruiz said Pakistan had managed to revive economic and financial stability over the past fiscal year despite a challenging external environment and the devastating floods in 2022.
She said Pakistan should shift its development model away from state intervention in economic decisions to achieve the prime objective of a better life for the majority — a goal the IMF will be “happy to support”.
“Protectionism and tax concessions for privileged groups must go.” Ms Ruiz stressed the country needs policies that promote competition, reduce trade barriers, and ease regulatory burden to facilitate the expansion of new and more productive activities.
Public sector reform
The IMF representative supported reforms in the public sector to make it capable of generating the resources needed to improve public services, build human capital, and upgrade infrastructure in a fair and sustainable manner.
The new EFF expects the government to focus on these priorities in order to make the programme a success.
The EFF endorsed the government’s commitment to set Pakistan on the track to a “resilient and inclusive growth through several key pathways” so that real incomes are protected, Ms Ruiz said.
She called for making the taxation policy “just and fair” by taxing the rich and bringing the untaxed sectors into the net.
“Enhancing the role of provinces in fiscal affairs (in line with the 18th Amendment) will help balance resources and spending programmes between federal and provincial governments,” Esther Perez Ruiz said.
“Evidence suggests that investing in people through improvement in healthcare, education, training programmes, and by fostering entrepreneurship help in realising a country’s growth potential.”
Dr Abid Qaiyum Suleri, the executive director of SDPI, said Pakistan’s macroeconomic indicators were improving, describing the Saudi business delegation’s visit as a sign of confidence that the economy will rebound eventually.
Published in Dawn, October 11th, 2024
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