IMF MD Kristalina Georgieva in effect kicked off negotiations with Pakistan by telling the Atlantic Council, which she was addressing, that the country had important issues to resolve. The implication is that the upcoming negotiations would centre around measures that would address these issues. They included “the tax base, how the richer part of society contributes to the economy, the way public spending is being directed and of course, creating … a more transparent environment.” It might seem hypocritical of the IMF to be showing concern about the poor, but there may also be a realization that the Pakistani consumer may well have been taxed beyond his or her capacity, and thus it is time to turn attention to the ‘richer part of society’ and how elite capture has allowed it to avoid paying its fair share of taxes. This unfortunately does not necessarily mean relief, for the IMF thinks of itself as correcting through its conditionalities the errors of the past, and ‘tough love’ is probably how it would like to think of it.
While conducting its recent review, the IMF team indicated that it might push for a revision of NFC Award, to change the federal-provincial proportions in revenue sharing. There is military expenditure, to which it has objected in the past, and there is the knotty problem of pension reform. An interesting dimension of the spending side. It is not that the IMF has not been deeply interested in this, but now it seems that there is going to be a closer examination of the public policy effects of that expenditure.
However, though engagement with Ms Georgieva is going to be the most important engagement by Finance Minister Muhammad Aurangzeb when he goes to Washington today for an eight-day visit, he has other crucial meetings ahead of him. One will be with World Bank President Ajay Banga, and another with US Assistant Secretary of State for South Asia Donald Lu. As Mr Lu is supposed to have been the villain of the piece for the PTI in the cipher episode, that meeting will be closely watched. Mr Aurangzeb will have his work cut out for him, but the signals coming out of Washington so far indicate that, while the IMF will extract a pound of flesh, it is inclined to giving Pakistan a new package.
