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EDITORIAL: Resident Representative of the International Monetary Fund (IMF) in Islamabad, Esther Perez Ruiz, messaged the following to Business Recorder: “the Fund looks to continue its support to Pakistan and, once a new government is formed, we will engage on policies to promote macroeconomic stability and enquire about intentions vis-a-vis programme engagement.” Three observations on the message are critical.

First, does the reference to the new government imply the caretakers? The Ministry of Finance officials claim that the caretakers are empowered to engage with the Fund on a quarterly review but not on a new programme; and given that this is the seventh review, negotiations between the caretakers and the Fund can be held. However, while they are technically correct the fact of the matter is that all multilateral donors, including the Fund, World Bank and Asian Development Bank, prefer to engage with a wide spectrum of stakeholders to ensure widespread ownership considered necessary for the success of the programme — stakeholders that include the government, members of the opposition, civil society and the business community with the objective of ensuring sustainability of their programme through ownership. This is reflected by the Fund’s insistence that the 342 billion rupee withdrawal of exemptions supplementary finance bill and the State Bank of Pakistan (SBP) autonomy bill be passed from parliament as a prior condition for releasing the tranche in February this year. The question is therefore whether the Fund will be satisfied with signing off on the dotted line with the caretakers.

7th review of EFF: IMF says will enquire over programme engagement with new govt

Second, the seventh review talks have been inconclusive at the policy level stage, though the outgoing finance minister, Shaukat Tarin, had indicated a couple of weeks ago that the Fund’s agreement is expected any day, and not at the technical levels talks — the latter is the prerogative of the relevant Ministry officials while the policy level talks are held with the finance minister and the Governor State Bank of Pakistan.

The reason for inconclusiveness is that the following two packages announced by the Prime Minister were violative of the January 2022 sixth review agreement between the Fund and the Pakistan authorities, which prompted Ruiz to note in the message that the Fund intends to enquire about intentions vis-a-vis the programme: (i) relief package on 28 February this year which envisaged a 10 rupee per litre reduction in prices of petroleum and products and a 5 rupee per unit reduction in electricity tariff till the end of the fiscal year on 30 June 2022 — a package that is expected to be over a couple of hundred billion rupees though it cannot be quantified as the international price of oil and products is dependent on the lifting of sanctions on Russia; and (ii) industrial package announced on 1 March envisaging exemptions on all industries excepting a few and a tax amnesty. These two packages are unsustainable and were offered solely for political considerations. It is unclear whether the caretakers will take it upon themselves to adhere to the terms and conditions agreed by the PTI administration in the sixth review or reverse the PTI government’s two packages, thereby generating considerable public ire or leave it to the next elected government to deal with the situation.

And finally, Ruiz’s message states that the Fund would engage in policies to promote macroeconomic stability. There is no doubt that Pakistan is again experiencing macroeconomic instability with July-March 2021-22 trade deficit widening to 35.39 billion dollars. This should be a source of serious concern as in July-March 2018-19 the trade deficit was 21.26 billion dollars, in 2019-20 for the same period it declined to 15.85 billion dollars and was 18.65 billion dollars July-March 2020-21. In other words, the deficit has risen by around 14 billion dollars from 2018-19 to the present.

Remittances have risen significantly — from 16 billion dollars in July-March 2018-19 to 16.9 billion dollars in the comparable period of 2019-20 to 17 billion dollars in 2020-21 and registered a whopping 20 billion dollars during July-February 2021-22 yet this significant rise in remittance inflows is lower than the rise in the trade deficit. This implies a higher current account deficit than the 20 billion dollars in 2018 which was a cause of much justified censure of the PML-N’s economic managers. Thus it is little wonder that macroeconomic stability is again the priority of the Fund.

It is obvious that the economy is, once again, in a gridlock and while the public is not experiencing the extent of the gridlock due to the relief package offered by the outgoing government, yet the package will have to be funded by more borrowing with a resultant impact on the budget deficit which, in turn, will fuel inflation by a lot more than its containment through subsidies that the exchequer can ill afford.

Copyright Business Recorder, 2022

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