International Monetary Fund’s Director of the Middle East and Central Asia Jihad Azour has urged Pakistan to do away with various subsidies stating that such interventions have always proved counterproductive.
After a meeting with Finance Minister Isha Dar and later talking to the media, Azour said that subsidies across the world have proved to be regressive rather than effective.
He said that the IMF was looking into the issue and it was not feasible for countries to spend a huge sum on subsidies and other social protections as it takes a heavy toll on fiscal space.
He said that the international lender was encouraging Pakistan and other countries to end the targeted subsidy as it was a waste of resources. He said that in South Asia, countries were spend two perccent of the GDP on subsidies and social protection.
He, however, clarified that it was not part of the IMF’s conditionalities.
The IMF said that it would send a team to Pakistan early next month to start the process for the next review of their current programme.
Transcript of JIHAD AZOUR, IMF Director of Middle East and Central Asia Jihad Azour
“Of course, we were saddened by the loss of human as well as also livelihood in Pakistan with the flood and we presented, and we reiterate our condolences for the people of Pakistan. As you know, the Fund has been very supportive to Pakistan over the last period. We have a program with Pakistan that has been extended and increased in size. This is to help Pakistan deal with the confluence of shocks starting with the Covid crisis where we provided additional flexibility.”
“We accelerated some of our disbursement to recently the exogenous shocks and the shock of increase in price of food and commodity. We had recently completed a review that provided Pakistan with $1.2 billion and hopefully we will be fielding a mission in November after the annual meetings to Pakistan in order to start with the authorities preparing for the next review.”
“We are waiting currently for the assessment of the damages that World Bank and UNDP are conducting in order to see what are on one hand the repercussions on public finance and the impact on the economy and on the society.”
“Based on this assessment, we will need to update our numbers and based on our discussion with the authorities, we will also listen to them to see what are their priorities, and how the Fund can help. Of course, on the issue of subsidy, as in other parts of the world, subsidy that is targeted to support certain items has proved not to be very effective. “
“I would say it has proved to be very regressive. And in our regional economic outlook we are again looking at this issue that is showing that this is not the best way to use the very limited fiscal space that exists. Therefore, we are encouraging Pakistan as well as also other countries to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it. I give you one simple example.”
“The region spends on social protection 2 percent of GDP and in certain cases what countries are spending on subsidies could be the double of that.”
“Therefore, it’s very important to use this moment where challenges are mounting, where increase in prices is hurting, to reallocate the resources for those who need it most. And this is something that it’s not, I would say, part of the IMF conditionalities, this is part of what is needed in order to provide the right protection for those who need it at the time where inflation is very high.”
