IMF programme resumption only way for economic stability: Pakistan Business Council

As Pakistan's economy passes through one of its toughest phases in recent years, amid dwindling foreign exchange reserves and a rising import bill, the Pakistan Business Council (PBC) believes resumption of the International Monetary Fund’s (IMF) loan facility is the only way to bring much-needed economic stability.

“All roads to restoring economic stability lead through IMF,” the PBC said in a series of tweets. “Without revival of the programme, no further help from friendly countries is likely,” said the business advocacy body.

The government remains committed to reviving the stalled $6 billion Extended Fund Facility (EFF) of the IMF. The international lender is scheduled to start a staff mission on May 18 with the Pakistani authorities in Doha, Qatar.

Pakistan authorities have requested the IMF extend the EFF arrangement through June 2023 as a signal of their commitment to address existing challenges and achieve the programme's objectives.

Meanwhile, the PBC noted that deposits placed in the State Bank of Pakistan (SBP) by other countries “to prop up reserves are also vulnerable to withdrawal.”

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It also said the government should replace the general fuel subsidy with a targeted one, and must find ways to limit consumption and import of fuel to preserve the dwindling foreign exchange reserves to buy wheat and edible oil.

“Inaction will entail serious consequences bordering those in Sri Lanka,” warned PBC. The body said that a higher rate of inflation is inevitable even with subsidies, given the direction of the rupee.

The local currency has been on a downward spiral and has fallen to Rs195 level against the greenback in the inter-bank market.

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“Unless the SBP takes a differentiated approach to cost-push inflation, a higher policy rate will further impact the formal sector and raise the cost of borrowing for the government,” said the PBC, adding that fiscal prudence should be adopted alongside the monetary tightening already in place.

“Time will tell if the government has the courage and stamina to do the right thing. In the meantime, it would be wise to brace for further economic turbulence,” said the PBC.

Back in February, the body had submitted proposals with federal government for promoting scale, competitiveness, formalisation and investment. It had also urged the government to take various measures for the export promotion under its ‘Make in Pakistan’ thrust.