EDITORIAL: With the passage of time it is becoming increasingly clear that the strategy of the eleven plus parties’ coalition government to deal with the economic imbroglio starkly facing the country today is unfortunately marked by inertia and fear of the public outcry against the much-needed appropriate monetary and fiscal policy adjustments, including ending unfunded subsidies announced on 28 February by the then prime minister, Imran Khan.
There is, however, no escape from these adjustments since they are a prerequisite to put the now stalled International Monetary Fund (IMF) programme back on track for conclusion of the seventh staff review. For the moment the government’s preference is to seek external funding from friendly countries to meet the widening expenditure resource gap which is rising by the hour; instead of reviving the Fund programme.
The visit of Prime Minister Shehbaz Sharif to Saudi Arabia and an unscheduled stopover in Abu Dhabi, the capital of the United Arab Emirates (UAE), ostensibly subsequent to Saudi crown prince Muhammad bin Salman’s telephone call to the Emirate, was to secure additional financing and roll over of the existing Saudi and the UAE funds parked in the State Bank of Pakistan (SBP) for a year.
In addition, an oil facility on deferred payment was sought while a UAE team visited the country during the Eid holidays to thrash out investment possibilities. However, to-date nothing has been credited to the SBP nor have there been any investment inflows from these two friendly Arab countries.
This has lent credence to the speculation that funding would be made available by the two countries conditional on the success of the IMF’s seventh review, indicating that there is little comfort level even amongst Arab countries that Pakistan will stay the reform course — a first in our history of relying on support from these two Arab countries. It is important to note that it is also the first time ever that the condition of roll over of assistance from friendly countries is a precondition for the ongoing IMF programme.
The Prime Minister is also expected to visit China in the near future to seek a rollover of swap arrangements and other assistance. However, there are concerns repeatedly voiced by the Chinese that their contractual obligations with respect to power sector projects under the China Pakistan Economic Corridor (CPEC) are not being honoured.
This is a complication that would have to be resolved before rollover of past assistance and provision of additional assistance are likely to be considered. Qatar is another country the government is expected to seek assistance from.
In this milieu Foreign Minister Bilawal Bhutto-Zardari received an invite from his US counterpart Foreign Secretary Anthony Blinken, to attend the Global Food Security meeting held under the auspices of the United Nations; Blinken tweeted on 7 May that he spoke with Bilawal Bhutto-Zardari, adding that “this year marks the 75th anniversary of US-Pakistan relations and we’re committed to strengthening our relationship and our cooperation on Afghan stability, combatting terrorism and expanding commerce.
Optimists maintain that re-engagement with Pakistan at that level could well be a precursor of an intent by the State Department to support relief from the Fund’s harsh upfront conditions and they cite Pakistan’s easy terms for the September 2008 Stand-By Arrangement (SBA) with the IMF during the Zardari-led government’s tenure as a case in point. The matter of US support in the Financial Action Task Force’s grey list may also come under discussion, they further contend.
Pakistan’s reform agenda as a precondition for the success of the seventh review as per the IMF, without US support, requires implementation of harsh upfront conditions that are extremely challenging politically as they include reversal of the 28 February relief package as well as a further tightening of monetary and fiscal policies — the main reason behind the government’s inaction on these critical fronts since it took oath five weeks ago.
And, while it stands to reason that the Pakistan People’s Party (PPP) and other coalition partners would oppose ending the unfunded subsidies and/or tightening the monetary and fiscal policies to deal with the crisis domestically, yet one would hope that Prime Minister Shehbaz Sharif looks closely at statements by his Finance Minister Miftah Ismail, a PML-N party loyalist, who has publicly distanced himself from the decision to continue the unfunded subsidies by claiming that it is the Prime Minister’s decision.
This shows not only a split within the PML-N on the best way forward but also engenders little confidence in the cabinet being on the same page.
The Prime Minister must not solely rely on external support for the success of the seventh review and consider taking appropriate policy measures that may bear fruit within the next six months and which include a focus on reducing the budget deficit through massively slashing current expenditure and an out-of-the-box solution to reducing the debt burden — a policy that will pay dividends in terms of lower inflation that would be more sustainable than subsidies; he also needs to ensure appropriate monetary policy decisions that focus on reducing rather than fuelling inflation by an eroding rupee and a discount rate two percentage points higher than the core inflation.
To do this in any meaningful way, the government would have to address the problem of unsustainable fiscal deficit without which it would simply not be possible.
In any case if the coalition government does not succeed in its endeavour and is unwilling to bear the political cost of the compelling requisite measures to steer the economy out of the trap that it is in, the government should make way for a caretaker government by dissolving the National Assembly and calling for general elections.
Copyright Business Recorder, 2022
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