- Former finance minister says global lender asked PTI to match policy rate with headline inflation instead of core inflation
Pakistan Tehreek-e-Insaf (PTI) leader and former finance minister Shaukat Tarin underlined on Wednesday that the International Monetary Fund (IMF) was being lenient with the current government and that it had asked PTI leadership to match policy rate with headline inflation instead of core inflation.
Speaking at a press conference, he stated that during negotiations with PTI, the global lender acted quite strictly.
“Today, headline inflation is 25-30% and IMF will not ask the current government to match it with policy rate,” he said. “Now, people will know who was behind the ouster of PTI government from the centre.”
He stressed that the incumbent government should have contacted Russia for cheap oil import as soon as it assumed power. After securing cheap oil from Russia, the government should have introduced a targeted subsidy and slashed the Public Sector Development Programme (PSDP), the former minister said.
Tarin recalled that the PTI government began the process and even wrote a letter to Moscow for an oil deal. However, the current government delayed the decision on prices of petroleum products all together.
The current government’s remark that the current account deficit would amount to $22 billion turned markets and banks nervous and resultantly, the State Bank of Pakistan (SBP) hiked interest rate.
“When interest rate rose, the Pakistan Stock Exchange fell and anticipation of current account deficit at $22 billion signalled a shortage of dollars in the market which mounted pressure on rupee,” he said. “This devalued rupee to Rs212 per dollar compared to 181 when we left.”
According to him, the same remarks led the IMF to stall $6 billion programme.
On the other hand, delay in oil and gas import caused severe electricity load shedding in the country, he said. “The government gave the first mini budget after 6 weeks in power in form of Rs85 per litre hike in petrol price in a matter of two weeks.”
In addition, gas price will rise by 45% from July 1, the finance minister said. Tarin pointed out that the Sensitive Price Indicator (SPI) had climbed to 28% and prices of essential commodities had hiked by 40-50%.
Terming the budget 2022-23 provisional, he said the country would fail to achieve 5% growth rate because 30-35% inflation will restrain the industrial, agriculture and services sectors to post expansion.
“Sindh and Punjab governments are in deficit yet the federal government expects provincial surpluses from the two provinces to aid centre.” he said. “Now, the leadership is in talks with IMF and it has fixed revenue budget at Rs7.5 trillion. We would have kept it at Rs8 trillion.”
He lamented that the progressive tax measures introduced by the PTI government were reversed.
“The leadership has scrapped ID card condition for retailers to protect them,” he said. “The government is protecting retailers and this will burdenise taxpayers further.”
According to him, taxation mechanism should be progressive. Moreover, he regretted that the government would hike petroleum development levy to a historic level of Rs50 per litre and said this would increase inflation and contract exports and foreign direct investment.
“Imports such as edible oil, coal and LNG cannot be narrowed down hence the government will not be able to curtail import value,” he said.
IMF deal to take many weeks
Tarin highlighted that talks between IMF and Pakistan will continue for some time. He added that the multilateral lender was set to speak to the State Bank of Pakistan officials to check the inflation number, currency level and discount rate, he said.
“Even the statement from IMF says that the deal is work-in-progress right now,” he said. “However, there has been a significant development.”
Refuting the claims that the IMF deal with revive on Friday, he added that Pakistan will receive memorandum of economic and financial policy (MEFP) on that day.
“We cannot say that the programme has revived yet. MEFP is a thorough and complicated document,” he said. “Government goes through it line by line and then a technical agreement is signed. This deal goes to Washington so it will take until July end at the earliest.”
The two sides have agreed on broad matters.
“Financial markets are nervous right now. Stock market and rupee recovered in the morning but fell by the end of the day. This is due to misstatements of the government,” Tarin lamented.