Opposition casts doubt on govt-IMF accord

The News Muhammad Anis Wednesday, September 18, 2013 From Print Edition ISLAMABAD: The agreement between the PML-N government and International Monetary Fund (IMF) came under strong criticism by the opposition members who demanded discussion on the terms and conditions of the agreement in the National Assembly. “Under the agreement reached with the IMF, the government is implementing anti-masses economic policies,” Dr Asad Umar of Pakistan Tehreek-e-Insaf (PTI), who took oath as a member of the lower house of parliament, said on Tuesday. PTI members Raja Aamer Zaman and Dr Arif Alvi, PPP members Dr Azra Fazal and Shazia Marri and MQM parliamentarians Khawaja Sohail Mansoor and Sajid Ahmad also criticised the present government’s economic policies. The members were taking part in a debate on a motion moved by PTI member Raja Aamer Zaman on the situation arising out of the agreement between the government and IMF to get a loan of $5.3 billion. Asad Umar observed that the agreement between the government and IMF reflected anti-masses measures. “The government-IMF agreement has raised many doubts in the minds of people who want the agreement should be made public,” he said. He predicted that the Pakistani rupee would be devalued further to 127 against dollar.He said the government had printed notes worth Rs636 billion in a period of just two months which would result in an unprecedented increase in inflation whereas the last government had printed Rs500 billion one year. Raja Aamer Zaman, the mover of the motion, said the government should take such important decisions like obtaining loans from the IMF in parliament.He felt that there would be no need to seek foreign loans if there was good governance in the country where unnecessary non-development expenditure was diverted to development funds. PPP parliamentarian Shazia Marri demanded of the government to re-visit the IMF agreement saying the document should be tabled before parliament. She said the PML-N used to claim that they had broken the begging bowl but it seemed that their government had carried the bowl of a bigger size. Khawaja Sohail Mansoor and Sajid Ahmad said before reaching any agreement with the IMF, the issue should have been brought before the finance committee of the House. Sahibzada Yaqoob of Jamaat-e-Islami said if it was necessary to obtain loans, those should be sought on terms and conditions in the national interest. Others who took part in the debate included Shaharyar Afridi, Aqibullah, Arifa Khalid, Mian Abdul Manan, Chaudhary Muhammad Ashraf, Khawaja Sohail Mansoor, Asiya Nasir, Engineer Ali Muhammad Khan and Rana Muhammad Afzal Khan. Winding up the debate, Minister of State for Parliamentary Affairs Shaikh Aftab Ahmad told the House that the finance minister would take the House into confidence on this financial matter soon. The PML-N MNAs introduced a private members bill to ensure errorless publication of the Holy Quran on fine quality papers and proper disposal of damaged holy pages and copies of the Holy Quran. The Act shall be called the Publication of the Holy Quran (Elimination of Printing and Recording Errors) (Amendment) Bill, 2013. According to an amendment in Elimination of Printing Errors Act, 1973, the recording companies will have infrastructural facilities for the disposal of damaged pages or copies of the Holy Quran. The bill was introduced by Major (retd) Tahir Iqbal and others. Two other bills titled Political Parties Order (Amendment) Bill, 2013 and the National Database and Registration Authority (Amendment) Bill, 2013 were also introduced. The Political Parties Order (Amendment) Bill 2013 envisages that every political party should have a minimum of 33 percent quota for women in the party’s elected general council and in any associated party committee and forum at the federal, provincial and local levels. It would also envisage fulfilling the national and international commitments of Pakistan government, including the Convention on Elimination or All Kinds of Discrimination against Women (CEDAW). The bill seeks to protect and strengthen women’s representation in the political and legislative process. The National Database and Registration Authority (Amendment) Bill, 2013 provides for encouraging private and public organisations to stop demanding copies of Computerised National Identity Cards (CNIC) and exclusive use of CNIC. This is meant to prevent misuse of copies of CNICs for various criminal or illegal activities. As many as 10 MQM members including Shaikh Salahuddin, Dr. Farooq Sattar and others introduced the Islamabad Capital Territory Local Government Bill 2013.The PPP members Dr Nafisa Shah and Dr Azra Fazal introduced a bill to provide safety from and control of deadly disease of HIV/AIDS [The HIV/AIDS (Safety and Control) Bill, 2013]. Meanwhile, the National Assembly was informed that no employee of the Pakistan International Airlines (PIA) will be removed during the privatisation of 26 percent shares of the national flag carrier. “I say categorically that the government has no plans to offload the PIA employees in the proposed process of privatisation,” Minister for Parliamentary Affairs Aftab Sheikh told the House in response to a Calling Attention Notice.

The IMF programme

Dr Ashfaque H Khan Tuesday, September 17, 2013 From Print Edition News The Executive Board of the IMF has approved a 36-month programme under the Extended Fund Facility (EFF) for US$ 6.68 billion on September 4, 2013. After the board approval, the IMF has released the first tranche of $540 million to the Pakistani authorities. The remainder of the amount will be released in equal instalments subject to the satisfactory quarterly reviews. The efforts of the present government must be appreciated for successfully negotiating a programme with the IMF within the first 100 days of its tenure. This programme supposedly aims to reduce the risk of balance of payment crisis in the short-term and to address Pakistan’s underlying medium-term problems to sustain higher and more inclusive growth. Quantitative performance criteria are set to reduce fiscal deficit, build foreign exchange reserves and lower inflation rate. Structural conditionality is designed to strengthen the country's tax system, address energy bottlenecks, liberalise the trade regime, restructure or privatise PSEs, improve the business climate, strengthen the SBP's operational independence, enhance financial sector stability, and protect the most vulnerable from the adjustment costs. The present IMF programme is designed in the worst form of ‘stabilisation first’ with major emphasis on reducing budget deficit, controlling public debt, building foreign exchange reserves and keeping inflation low. Growth and employment generation have been ignored altogether at least during the medium-term. The readers are reminded that the conventional macroeconomic policies that focused primarily on stabilisation to create the conditions for growth and employment generation have been discredited, particularly after the recent experiences of Greece, Spain, Italy and other European countries. The sharp fiscal adjustment to stabilise the economy was found to be associated with human suffering of colossal proportions. Such policies have not only postponed economic recovery in these European countries but some of them had to battle 60 percent youth unemployment with all its social consequences. The pain and suffering of the people in Europe have forced global leaders to rethink the ‘stabilisation first’ strategy. Over the last two years and as late as in early September this year in St Petersburg, the G-20 leaders recognised the importance of growth, job creation, equality and social development. They brought robust and ‘job-rich’ growth which is inclusive, broad-based and sustainable at the centre of macroeconomic policies. The managing director of the IMF has been attending the G-20 Summit and as such is fully cognizant of the developments. Given the fact that the eurozone economies are still weak and fragile and the risk of prolonged stagnation is gaining traction, the IMF on July 25 strongly recommended these economies to ease monetary and fiscal policy to spur growth and employment. Why have such policies not been prescribed for Pakistan which is stuck in a low growth mode (three percent per annum) for five consecutive years? Do Pakistan's economic woes diff from Greece and Spain? The answer is no but the prescriptions are discriminatory. Under the no-programme scenario, Pakistan's economy, as projected by the IMF, continues to grow by three percent per annum but with the programme, it grows at a marginally better rate of 3.2 percent during the programme period and 3.8 percent over the next five years. Given the demographic structure of Pakistan, over 2.5 million new job seekers are entering the job market annually for which its economy must grow by 7-8 percent per annum to at least absorb the new entrants. Under the IMF programme the people of Pakistan will experience the pains of adjustment on the one hand and a growing pool of the unemployed, particularly the youth, on the other. Such an outcome will have disastrous consequences both for the country and the political leadership. The conventional macroeconomic prescription has not worked in Europe; it is not working in Asia-Pacific and, therefore, will not work in Pakistan. I would like to make it abundantly clear that I am not at all advocating lax fiscal and monetary policies; neither am I encouraging fiscal irresponsibility. I am simply advocating for striking a balance between stabilisation and the developmental roles of macroeconomic policies. Such balance is missing in the IMF programme. It is a stabilisation policy of the 1980s vintage, applied in 2013. The world has changed since the 1980s. The new generation economists have learnt new tools and better way to address the conventional challenges. It was the same new generation of economists that brought the world economy out of the great recession of 2007/2008 within two years. The older generation economists took seven years to take the world economy out of the Great Depression of the 1930s. While there can be several risks as documented by the IMF itself which have the capacity to derail the programme, the very design of the programme is a major risk. Who will be blamed for the disastrous consequences of the programme? Naturally the present government and the IMF will be held responsible. Granted that the IMF has bailed the country out of the economic mess created by the incompetent economic team of the previous regime. Nonetheless, the design of the programme is the greatest risk to its success. Asking a political government to reduce budget deficit by five percentage points of GDP (from 8.8 percent to 3.9 percent of GDP) in a 36-month programme with three percentage points of GDP alone in the current fiscal year is a tough target which in all probability will not be achieved. While the IMF staff may be blamed for designing a programme that is bound to fail, the Pakistani authorities engaged in negotiation will equally be held responsible for its failure. The Pakistani side, it appears, was oblivious to the developments that were taking place on the global economic scene. They failed to put forward their views on fiscal deficit reduction, on the pace of removal of subsidies, on tax system and tax administration reforms and on growth and employment generation. They could have conveyed the social cost and human suffering of such a sharp adjustment. They could have argued for striking a balance between stabilisation and growth. It appears that Pakistan was in such dire straits that it wanted the IMF's support and money desperately. This programme is different from past programmes in many ways. First, the Letter of Intent jointly signed by the finance minister and the governor of the SBP gives explicit commitment from the highest level of political leadership (prime minister), cabinet, and provincial governments to comply with the policies and reforms underlying the programme. This has never happened before. Second, never before has the IMF been so explicit in commenting on the security, political and judicial environment of the country. It has talked about intensification of insurgency in Pakistan after the withdrawal of Nato forces from Afghanistan, sectarian violence in Baluchistan and street crimes in Karachi. What message has the IMF conveyed to global investors? It is the weakness of the Pakistani authorities that allowed such misplaced comments to be the part of the document. The writer is the principal and dean of NUST Business School, Islamabad.

International Monetary Fund Report

New rules stall Pakistan gold imports after ban lifted

The News 13 Sept ISLAMABAD: Pakistan is unlikely to resume gold imports soon even though the government has lifted an outright ban imposed during August, as the new rules for buyers are too restrictive, the jewellery industry said on Thursday. Pakistan stopped all gold imports for August after purchases soared in the first half and topped $514 million in July alone - more than double what it bought in the first six months of 2012 - citing smuggling into neighbouring India. New Delhi has itself stopped short of a total ban but has a record 10 percent duty on imports and strict controls on buyers as it tries to rein in purchases which helped swell its current account deficit to a record 4.8 percent of GDP in 2012/13. India's July imports were $2.9 billion - just short of half last year's monthly average as the government measures took grip in the world's biggest buyer of bullion. Imports slumped to $0.65 billion in August but could pick up from September. Now, Pakistan has said imports must be turned around into jewellery and exported within 120 days and has more or less doubled the amount of value that must be added in manufacture. Sales must be officially recognised by legal authorities in importing countries and Pakistan missions there. Only 25 kilograms of precious metals - gold, silver and platinum - can be imported on a revolving basis and cannot be used in the domestic market. "In light of the new rules, the future prospects of the import/export business are quite bleak," said Mazhar Ali, chairman of the All Pakistan Gems Merchants and Jewelers Association which says it represents almost 100 percent of the gold industry. "Earlier it was a very simple procedure as only a contract letter was required for import," he added. Mazhar Ali said that since the outright ban was lifted at the end of August, there have been no new imports of gold and only the balance outstanding from old contracts before the ban have been released by customs. All gold imports to Pakistan are currently meant for making jewellery for export. Domestic demand is met by recycling, Mazhar Ali told Reuters. (Reuters)

Qaeda chief calls for US attacks, economic boycott

The News 13 Sept 2013 WASHINGTON: Al-Qaeda chief Ayman al-Zawahiri, in a speech marking the 12th anniversary of 9/11, called Thursday for attacks on the United States and a boycott of the world's largest economy. A summary and translated English excerpts of the roughly 72-minute address was made available by the SITE Intelligence Group. The speech was posted a day after America held ceremonies in honor of the nearly 3,000 people killed in the attacks of September 11, 2001. "We should bleed America economically by provoking it to continue in its massive expenditure on its security, for the weak point of America is its economy, which has already begun to stagger due to the military and security expenditure," Zawahiri said according to the SITE translation. "And keeping America in tension and anticipation only costs a few disparate attacks here and there, meaning as we defeated it in the gang warfare in Somalia, Yemen, Iraq and Afghanistan, so we should follow it with that war on its own land," he added. Zawahiri went on to say that these strikes could be "done by one brother or a few of the brothers" and that it was worth waiting for the right moment in order to mount a large-scale attack. "With these strikes, we must monitor and lie in wait and seize any opportunity to land a large strike on it, even if it takes years of patience for this," he said. Zawahiri also referenced the twin bomb blasts at the Boston marathon in April that left three dead and scores wounded and maimed. (AFP)

Pakistan’s economic growth could be worse, warns IMF

The News 13 Sept SLAMABAD: The International Monetary Fund (IMF) warned Pakistan on Thursday that economic growth could be worse than expected next year due to strict austerity measures built into a $6.7 billion rescue loan. Pakistan is in the grip of its worst energy crisis in modern history which causes power outages up to 20 hours in parts of the country and has hammered industrial output. During the last five years, GDP has averaged only three percent, far short of the seven percent considered necessary to lift the country out of poverty and fully absorb the growing labour force. Central bank reserves have fallen to $6 billion, down from $14.78 billion in fiscal year 2010-11 and are enough only to cover imports for one and a half months. On September 5, the IMF agreed to extend Pakistan a three-year $6.7 billion loan, making an initial disbursement of $540 million available to the authorities. The loan is aimed at reducing Pakistan’s fiscal deficit — which neared nine percent of the gross domestic product last year — to a more sustainablelevel and reform the energy sector to help resolve severe power cuts that have sapped growth potential.But future disbursements are dependent on the completion of tough economic reforms measured at quarterly reviews. In Pakistan, a country of 180 million people, only around 250,000 people pay income tax and agriculture, which still accounts for 50 percent of the economy, is totally exempt.To repair the economy, Prime Minister Nawaz Sharif has promised to widen the tax base, improve the image of paying taxes and limit corruption. The IMF said his budget for the fiscal year to June 30, 2014 represented an important initial step but cautioned that a more efficient and equitable tax system was needed.Austerity will also push down growth. Before Thursday, the IMF predicted growth of 3.5 percent of GDP but revised that down to 2.5 percent if the necessary reforms were implemented. In announcing the loan, the IMF said Pakistan’s adherence to the programme would likely encourage financial support from other donors. The Asian Development Bank (ADB) has this week announced that it will invest $245 million in Pakistan’s power distribution systems.