Crisscross with Fund
Days after the IMF praised Pakistan for 'strong performance' under the Extended Fund Facility (EFF) programme, a subsequent rejoinder from the Fund has put the loan-recipient country in an embarrassing situation. The Washington-based lender is unhappy with the import of sugar and that too by setting aside conditionalities that were part of the $7 billion bailout terms. It believes Islamabad has bypassed it by waiving taxes, and that is tantamount to a breach.
This has landed the beleaguered government, which has not been able to fix the economic rot, in a catch-22 situation. And apparently, it is contemplating a damage control exercise which pertains to backing out of the imports entirely and withdrawing the tax waiver for the private sector.
The government's decision to import 500,000 metric tonnes of sugar was a fallback on its bewildering nod to export the sweetener to the tune of 765,000 metric tonnes. Many see it as a deliberate move to appease the wheeler-dealers in the sugarcane mafia and that also encompasses many in the corridors of power. Though this has become an established norm in our torpedoed state of governance, this time around it was found to be on the wrong side of the divide as it violated a written agreement with the IMF not to grant preferential tax treatment or engage in commodity purchases.
While the authorities tried to take a leave under the plea that the 'tax-free sugar import' was justified due to a food emergency, the lender has refused to entertain it. It is perplexing to note that the government went ahead with the export-import trial despite the finance ministry's assessment, which had forewarned of "detraction" by two breaches. The tax waiver, it is argued, was intended to reduce the imported sugar price by an estimated Rs82 per kilogram.
It remains to be seen how this mistrust will be undone, and whether the next tranche will be a victim of this mismanagement. All that is desired is to win back the confidence of the Fund, and to ensure that the reforms and growth target set are achieved. That is the only way to free the fragile economy from a new programme in duress.
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