The IMF programme progress seems stuck. The Fund extended full support for the Rapid Financing Instrument, but the programme reviews faces roadblocks before the case is presented to the board. The problem started in pre-Covid days. The other multilateral flows are coming in just because the country is in a Fund programme. That has given the country a breathing space. Otherwise, SBP reserves had fallen under $10 billion in June.
The Fund team in Islamabad and relevant ministries are in talks to come up with a doable plan. The thorny issue is energy tariffs – which needs a workable plan on resolution of energy circular debt. Vibes form the Q-block are that they are constantly engaged with the IMF team. Finance ministry is eager to continue with the Fund programme and the PM office is believed to be on board too.
The earliest review can be presented to the IMF board is September. This can be further delayed, as the IMF team would not take mere promises to the board. Some concrete actions and plans must be presented. Pakistan does not really need IMF tranches at this point; but Fund’s programme is imperative for continuation of stabilization, and to ensure multilateral flows keep on pumping. And once things normalize on Covid front, international market-based flows would not come without the IMF nod.
The Q-Block is clear that Pakistan cannot afford to opt out of the programme. But the buck stops at the PM office. How long can this continue? Sooner or later, something will need to give. The key for local authorities is to have some negotiation power at that time. Pakistan has that right now as reserves are strong. When the economy recovers, and current account deficit grows and reserve fall, Islamabad will have to give in to the IMF terms.
The lesson to learn for the government is to avoid the rerun of 2018. In early days of PTI, all the talks were on going to the IMF or not. Some used to insist on working on Plan B. Those who are still close to PM continue to insist on Plan B.
Precious time was wasted in 2018 and start of 2019. Had the government entered the Fund programme straightaway, more time could have been saved and the uncertainty could have been avoided much earlier.
This should not be repeated. Had there been any plan B, it could have been deployed back in 2018. The only plan at this point is to stick to the IMF. And that would be the eventuality. Better to do it soon. As of now, government has used the Covid opportunity to get construction package – amnesty and fixed tax rate, approved from the Fund. Use this time to get the IMF agreed on partial increase in power tariffs and other related issues. Delay it and be ready for tougher times.