Pakistani Prime Minister Nawaz Sharif faces the first formal test of his economic policies this week during a visit by the International Monetary Fund. He has a long way to go.
Sharif swept to a landslide victory in May after promising to fix a sluggish economy whose growth has averaged 3 percent over the last five years. Voters are hungry for jobs. Power cuts and minimal social services trigger frequent violent protests.
Last month,the IMF saved Pakistan from a possible default by agreeing to loan it $6.7 billion over three years,but its condition of quarterly reviews means the cash is not guaranteed.
A team led by the IMFs regional adviser,Jeffrey Franks,is visiting this week to see if Pakistan is trying to meet conditions intended to promote reforms.
The government has begun to tackle Pakistans fiscal problems,but diplomats say true success will come only when tax evaders are punished. Yousaf Nazar,a former head of Citigroups equity investments unit,said previous governments had secured IMF help by emphasising the countrys role as a vital ally in the NATO-led war in Afghanistan against Taliban insurgents.
No government in Pakistan over the last 20 years has ever shown any intent to carry our serious reforms, Nazar said. The government is just exploiting Pakistans position playing the Taliban card to get the US and IMF to continue to bail it out.
Eleven of 12 IMF programmes since 1998 have been scrapped or abandoned because Pakistan failed to institute reforms.
Governments have tried to game the IMF,and achieved partial success each time, two former Fund officials concluded in a recent paper. This time round,Sharif has promised the IMF to privatise loss-making state industries,reform a faltering energy sector,expand Pakistans tiny tax base and cut government borrowing.
Just 0.57 percent of Pakistani citizens paid income tax last year,contributing to one of the lowest tax-to-GDP ratios in the world. Public services are woefully underfunded.
Sharif plans to privatise 32 state-run companies,including two huge gas companies,the state oil company,several banks,the national airline and power distribution companies.
During Sharifs previous term as prime minister – ended by a coup in 1999 – he helped privatise several banks,said Muhammad Jameel,executive vice president at United Bank. Now we have a good banking sector that is about 85 percent private, he said. The global financial crisis hardly touched us.
Pakistans foreign exchange reserves have dwindled to about $4 billion,or the equivalent of four weeks worth of imports,and several large repayments fall due in the next six months.
Many economists argued that the IMF loan package had aimed to save Pakistan from the consequences of its financial recklessness because the nuclear-armed nation of 180 million was considered too important to fail.