IMF censures ‘untargeted’ subsidy schemes

ISLAMABAD: The International Monetary Fund (IMF) has urged Pakistan to move from an untargeted subsidy that is a waste of resources and proved to be very regressive, and to dedicate those resources to those who need it.

Jihad Azour, Director of Middle East and Central Asia Department, IMF, addressing a press briefing, said that the Fund will be fielding a mission in November after the annual meetings to Pakistan, in order to start with the authorities preparing for the next review.

At the briefing, a journalist asked the IMF official, “Will the IMF consider rescheduling debt to Pakistan amid devastation due to floods if asked by the Pakistani government? … will the IMF grant some relief to Pakistan in terms of repayment? The second question is on fuel prices in Pakistan. They have been reduced. Do you think it’s a violation of the IMF deal? Also, how confident are you with the current government of fulfilling its commitments to the IMF?

Azour replied that they were saddened by the loss of human life, as well as, livelihood in Pakistan due to the floods and presented, and reiterated their condolences with the people of Pakistan. He said the Fund has been very supportive of Pakistan over the last period. “We have a program with Pakistan that has been extended and increased in size. This is to help Pakistan deal with the confluence of shocks starting with the Covid crisis where we provided additional flexibility”, he added. The Fund accelerated some of its disbursement to recently the exogenous shocks and the shock of the increase in the price of food and commodity.

IMF projects decline in govt gross debt

The Fund had recently completed a review that provided Pakistan with $1.2 billion and hopefully, they will be fielding a mission in November after the annual meetings to Pakistan in order to start with the authorities preparing for the next review. “We are waiting currently for the assessment of the damages that the World Bank and the UNDP are conducting in order to see what are on the one hand the repercussions on public finance and on the other hand the impact on the economy and on the society”, he added.

Azour stated that based on this assessment, the Fund will need to update its numbers and based on discussion with the authorities, it would also listen to them to see what are their priorities, and how the Fund can help.

“Of course, on the issue of subsidy, as in other parts of the world, the subsidy that is targeted to support certain items has proved not to be very effective. I would say it has proved to be very regressive. And in our regional economic outlook, we are again looking at this issue that is showing that this is not the best way to use the very limited fiscal space that exists. Therefore, we are encouraging Pakistan as well as other countries to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it. I give you one simple example.

The region spends on social protection two percent of the GDP and in certain cases what countries are spending on subsidies could be the double of that”, he added. Azour said that it is very important to use this moment where challenges are mounting, where the increase in prices is hurting, to reallocate the resources for those who need it most. And this is something that it’s not, I would say, part of the IMF conditionalities, this is part of what is needed in order to provide the right protection for those who need it at the time where inflation is very high”, he added.

Copyright Business Recorder, 2022