Pakistan has hailed its standby arrangement with the International Monetary Fund (IMF) as a milestone in its reform agenda, but in the longer term analysts said its economic prospects remained gloomy.
The IMF last week approved a $596 million standby package over 10 months to ensure Pakistan can reschedule its mountain of some $38 billion in foreign debts.
Finance Minister Shaukat Aziz described the long-awaited agreement as "clearly a major milestone in the efforts of this government to rebuild the economy."
The agreement, although much less ambitious than the military government had been hoping for in the early stages of its talks with the IMF, effectively marks Pakistan's readmission into international financial circles.
It is the first IMF assistance Pakistan has received since 1998, when arrangements were suspended because the ousted Nawaz Sharif government failed to reach its targets.
Sharif was toppled in a coup in October last year and the new government under General Pervez Musharraf has pledged to revive the economy, stamp out corruption and rebuild "genuine democracy."
The business community has generally welcomed the new IMF deal, hoping it would boost foreign investment.
"The approval will remove the two years of uncertainty looming over the economy and enhance our credibility in the world market," Karachi Chamber of Commerce and Industry President Zubair Motiwala said.
But he said that come September, when the IMF money runs out, the government would be back at square one.
At the top of its list of commitments with the IMF, Pakistan had agreed to cut the budget deficit to 5.2 percent of GDP in 2000-2001 from 6.4 percent.
"The program aims to move Pakistan on to a high and sustainable growth path by strengthening the balance of payments position, rebuilding official reserves, and reducing public sector indebtedness," IMF managing director Horst Kohler said.
Kohler said "the successful implementation of the program ... together with key initial steps" could lead to "medium-term" IMF support, but not without significant progress in key areas of chronic weakness.
The main problem is a lack of revenue, with a massive, untaxed black economy and a hostile merchant class that is being forced to pay its dues for the first time.
"Since there is significant uncertainty surrounding the short-term impact of revenue measures on the budgetary position, the authorities should stand ready to take additional measures if revenues fall short of expectations," Kohler said.
"Looking forward, continued improvement in revenue performance will be crucial for reducing the public debt burden and allowing more resources for tackling poverty on a lasting basis."
Analysts said Kohler's veiled warnings about "improvement in revenue performance" could come back to haunt the government this time next year.
"This statement will bring us more taxation as revenue collection is much less than the target," ABN-AMRO Securities analyst Arshad Arif said.
"The CBR needs to collect at an average of 42.5 billion rupees per month till end-June to get the revised (annual revenue target) of 430 billion rupees, which looks impossible without new taxation," Arif said.
On top of its tough tax drive designed to document the black economy and reel in the millions of evaders, the government has also implemented an unpopular sales tax.
It has only recently convinced small businesses of the need to pay taxes following months of often violent protests against the tax crackdown earlier this year.
Analysts said any additional tax burdens could provoke another rebellion from the powerful merchant community, again testing the Musharraf regime's stomach for reform.— (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com)