The special IMF team, which very emphatically denied that it was conducting a review, has left, with no min-budget recommendation. That did not mean it had nothing to say about Pakistan’s performance on the economy, after getting the first tranche of the $7.7 billion. Its reminder that the provinces and federal governments had signed a National Fiscal Pact in September, was an indication that the IMF is now going to pay attention to the nuts and bolts of provincial finances. That attention had already been drawn, by the promise to achieve provincial surpluses and the failure of the provinces, particularly Punjab, to meet it. However, the IMF also wants to transfer certain spending responsibilities to the provinces, such as the Benazir Income Support Programme, as well as certain education expenditure. What was not mentioned is the idea that the federal-provincial split in the NFC Award should be revisited, even though the Constitution provides that provincial shares shall not be reduced once allocated. One of the issues of increased responsibility for the provinces is the funding. The provinces’ taxes are relatively inelastic, which means that increasing rates will not increase revenues. New sources of revenue are thus perforce being explored, like the agriculture tax amendments by Punjab.
While the IMF would like to see the provinces get into certain areas, it would like to see the federal government get out of those as well as others, and to reduce state control of the economy. In other words, it wanted privatizations to go ahead. Though it did not single out any specific organization, it was probably a gesture towards the PIA privatization, which was botched, with a sole bid received, and that too a sixth of the reserve price. The Privatisation Commission has rejected the bid, and referred the matter to the Cabinet Committee on Privatization, whose decision the full Cabinet will probably endorse. An area of interest for the IMF has been the electricity distribution companies, whole privatization it insists will improve their functioning. This includes DISCOs which chronically lose because consumers use clout not to pay their bills.
The IMF’s mission was standard practice for any country on programmes involving semi-annual reviews. The review mission is due next year, in the first quarter. That will prove a true test of whether the governments, now including the provincial ones, have internalized the lessons this mission tried to bring.
