EDITORIAL: The Prime Minister's economic team held a press conference with a select group of journalists and repeated the same narrative as during the previous carefully choreographed interactions with the media: that the policies being implemented by the government, though harsh, have begun to bear fruit and that all that is not kosher in the economy can be attributed to the pandemic whose effects are patently evident in the rest of the world. The International Monetary Fund (IMF) is extremely supportive of Pakistan as the country has remained on the challenging reform path and this is evident from the 1.4 billion dollar rapid financing instrument extended by the Fund in April 2020, the Fund's agreement to extend the amnesty scheme for the construction sector till end December 2020 and the ongoing talks, almost daily, would be given a formal shape as and when the mission arrives within the next two to three weeks. They then proceeded to emphasize that the government has doubled the allocation under the Ehsaas programme - from 100 billion rupees per annum (though the actual budgeted allocation in 2018-19 was 120 billion rupees) to 192 billion rupees in the budget for the current year - a reflection of the fact that the Khan administration is committed to the uplifting of the poor and the vulnerable.
This newspaper has been fully supportive of the reform agenda as incorporated in the IMF's 6 billion dollar Extended Fund Facility programme but has strongly objected to the upfront harsh prior conditions that began to be implemented since the second week of May 2019; and consistently pointed out that a more phased approach would have been more successful and its political negative ramifications in terms of rising inflation and unemployment more manageable.
Growth for 2019-20, the first year of the Fund programme, was projected at a low 1.5 percent pre-Covid due to the severe contractionary monetary (a high discount rate that choked off productive activity leading to large scale redundancies estimated at between 50,000 to 100,000, and a rupee undervaluation that made imports expensive, including raw material and semi-finished products) and fiscal policies (with the unrealistic target set at 5.5 trillion rupees with the objective of bringing the untaxed rich into the tax net but instead has led to an increase in the cash economy). To put the entire blame for low growth and redundancies on the pandemic therefore is not appropriate. In the current fiscal year the budget has projected an optimistic growth of 2.1 percent; however, this optimism is not shared by the multilaterals as their projection is no more than one percent which is unlikely to generate the 4.9 trillion rupee tax target set for the current year.
The government's claim that it has realized significant savings from the allocations on the Prime Minister, the cabinet members, the Presidency as well as salary freezes for civilian and military personnel must be appreciated; however, it is not reflected in the budget documents which indicate a decline in current expenditure associated only with the deferral of markup and principal of official debt as and when due (on offer by the creditor nations to deal with the pandemic and requested by the Pakistan government). It was also clarified that the Prime Minister's claim that the total foreign debt has not increased till October 2020 is premised on the fact that the rupee has depreciated in value considerably in recent weeks. In this context it is relevant to note that next external financing (inflows and outflows) were 166.4 billion rupees in last year's first quarter while in the comparable period of the current year the amount was lower at 161 billion rupees. This 4.5 billion rupee reduction is too little to take account of the deferment of markup and principal repayment from official sources given that the total amount budgeted under this head was 1.2 trillion rupees in the revised estimates of last year and zero this year. Development expenditure has been scaled down by 50 billion rupees in the current year as compared to the year before - an expenditure item that has largely spearheaded growth and employment during previous administrations.
Discussions on the second mandatory quarterly review, a prerequisite to the next tranche release, that should have been successfully completed well before the pandemic hit the country in March 2020, remain stalled to this day, fuelling speculation that the country has remained on the agreed reform agenda may not be shared by the Fund staff. It was however acknowledged that talks on the energy and tax sector reforms are underway with the Fund and that the government is engaged in reforms in both sectors. What is required is for an urgent revisit on phasing out the reforms and one would hope that the Fund would be amenable to necessary timing revisions for the programme to be successful.
Copyright Business Recorder, 2020
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