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EDITORIAL: Saudi Arabia’s Minister of Finance Mohammad al-Jadaan, on the sidelines of World Economic Forum being held in Davos, stated that “we are currently finalising the extension of 3 billion dollar deposit to Pakistan” — a confirmation that is unprecedented given the traditional Saudi reticence to publicly acknowledge assistance to another country.

This Saudi statement had fuelled considerable hope within Pakistan struggling with depleting foreign exchange reserves, at present no more than enough to cover 1.5 months of imports, and an unsustainable trade deficit (around 40 billion dollars July-April 2022) that in turn is contributing to an unsustainable current account deficit, estimated at a little over 13 billion dollars to date.

Erroneously, however, the public admission by the Saudi Finance Minister had also raised hopes that it would not only raise the comfort level of the International Monetary Fund (IMF) team, given that rollover of assistance from friendly countries during the 6 billion dollar Extended Fund Facility was a prior condition, but also give some leverage to Pakistan authorities negotiating the seventh review in Doha.

The Pakistan authorities failed to prudently exercise leverage of al-Jadaan’s statement in phasing out the Fund’s extremely rigid prior conditions (including with respect to the 28 February unfunded subsidies announced by the former Prime Minister) rather than in an overnight rollback by citing the high rate of domestic inflation largely sourced to the rising global commodity prices due to the Russia-Ukraine war.

The foregoing can be discerned from the ‘End-of-Mission’ press release issued by the IMF at the conclusion of Doha talks yesterday. It has said, among other things, the following: “Considerable progress was made during the mission, including on the need to continue to address high inflation and the elevated fiscal and current account deficits, while ensuring adequate protection for the most vulnerable. In this regard, the further increase in policy rates implemented on May 23 was a welcome step.

On the fiscal side, there have been deviations from the policies agreed in the last review, partly reflecting the fuel and power subsidies announced by the authorities in February. The team emphasised the urgency of concrete policy actions, including in the context of removing fuel and energy subsidies and the FY2023 budget, to achieve programme objectives.”

It is now quite clear that the stalled programme will not be featuring the IMF board’s agenda for revival in the absence of staff-level agreement. Consequently, the IMF board shall not be giving approval to the release of any tranche for Pakistan.

The IMF statement also indicates that the government would be required to take all the prior actions or meet conditions in the budget for fiscal year 2022-23 to the satisfaction of Fund. The government’s budgetary step would lead to another and possibly conclusive round of staff-level talks soon after the passage of the budget. The release of IMF tranche at best can be expected by the end-July/August 2022.

To conclude, one would also hope that the government take appropriate measures in long term that reflect a desire to break our perennial reliance on IMF support (Pakistan is currently on its 23rd programme) and breaks the begging bowl once and for all — a goal that requires slashing the budgets of major recipients of current expenditure and particularly reduce reliance on domestic borrowing as well as from the commercial banking sector abroad (procured at high rates with a short amortisation period) designed to reduce the budgeted mark-up each year.

And at the same time, the devolved subjects should be fully and completely devolved to the provinces, the state-owned entities restructured and/or sold off and focus must shift away from raising revenue to reforming the tax structure in a way that would bring the elite into the tax net. The critical mitigating measures required have been highlighted time and again in multilateral programmes, by country’s economists as well as by Business Recorder.

The previous three administrations acknowledged the need to implement identified reforms both within their negotiations with multilaterals as well as domestically but when push comes to shove they have delayed or backed off from implementing them.

Copyright Business Recorder, 2022


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