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EDITORIAL: The much awaited staff-level agreement with the International Monetary Fund (IMF) on the sixth review was reached after virtual discussions during October 4-November 18, 2021 and noted on the Fund’s website early Monday morning on 22 November. Details of the time-bound quantitative conditions and structural reforms agreed with the Fund would be uploaded on the Fund website under the sixth review in due course - the timing of which is subject to “approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms.”

Based on the statement released by the Fund, the previous (one to fifth) Fund review documents as well as recent statements by Pakistani economic team leaders, it is safe to assume that the reference includes the passage of not only a money bill through parliament seeking to end 330 billion rupee exemptions but also approval of the State Bank of Pakistan (SBP) Act Amendments envisaging greater autonomy to the central bank. Though the government successfully passed 33 bills on 17 November, Wednesday, after reaching a ‘backdoor’ deal with its coalition partners, yet these two ‘prior action’ bills were not included perhaps because they have been rendered extremely controversial.

In other words, the government will have to ensure there is no slip betwixt the cup and the lip on these two prior actions which may not be as easy to bulldoze through parliament as was evident prior to the recent transfers in institutions. It is important to note that Business Recorder has advocated and therefore supports the IMF’s objective with respect to the central bank “gradually advancing preparatory work to formally adopt an inflation targeting regime in the medium term, underpinned by a forward looking and interest rate focused operational framework.” This would require SBP to take responsibility for inflation targeting, instead of citing decisions by the Ministry of Finance and the mafia pervasively operating on the supply-side, as well as carrying empirical research on which inflation index to link the discount rate to — core or consumer price index.

Two major elements that required a spotlight received a mere airbrush in the Fund’s concluding statement that should be a source of concern for the general public. First, it was noted that the target for the primary deficit was not met, defined as not including markup as and when due, and therefore the increased reliance on debt, domestic and external, was not a major component of the statement though this is almost certainly likely to be noted in the detailed documents to be uploaded on the IMF website subsequent to approval by its Board, which again as stated above is subject to implementing prior actions that would put the economy squarely back in the stabilisation mode and mark the end of the much touted growth mode.

And second, the statement added, that “the government plans to introduce as package of fiscal measures targeting a small reduction of primary deficit with respect to last fiscal year based on (i) high quality revenue measures to make the tax system simpler and fairer (including reforms to GST system, an indirect tax) but there was no mention of the need to undertake reforms that would shift the current heavy reliance on indirect taxes, with more than 80 percent of direct taxes collected under the withholding regime which is also a form of indirect tax whose incidence is greater on the poor than on the rich; and (ii) ‘prudent spending restraint with fully protected social spending’ (budgeted at less than 3 percent of total 2021-22 budget outlay) yet the spotlight was not shone on the massive and persistent rise in current expenditure particularly during the past three years.

The rest of the measures identified in the statement as being critical to strengthening economic productivity, investment and private sector development have been the subject matter of not only the previous five reviews of the ongoing programme but also reviews of the previous 22 programmes (with the situation steadily worsening due to persistent failure to implement reforms) notably improving governance, transparency and efficiency of state-owned entities, fostering business environment, governance and control of corruption, boosting competiveness and exports, promoting financial deepening and inclusion and perhaps due to Lahore persistently being declared as the world’s worst city in terms of air quality stepping up climate change. And, disturbingly though the statement does not conclude on a low note yet within the almost three-page statement there is a dire warning notably “this economic outlook continues to face elevated domestic and external risks while structural challenges persist.”

Copyright Business Recorder, 2021


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