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EDITORIAL: The economy remains extremely fragile notwithstanding claims by Finance Minister Miftah Ismail in a press conference the day before the by-polls in Punjab that the government had to take tough and unpopular decisions to avert default that he blamed on the policies of the Khan administration.

While there is no doubt that the budget deficit was unsustainable at 9.1 percent in 2021-22, unsustainable for the third year in a row, yet the possibility of default on past loans was perhaps not as acute as he claimed for two reasons: (i) the unfunded relief package announced by the then prime minister, Imran Khan, on 28 February this year cost the exchequer 250 billion rupees (more than half of which can be attributed to the delays in withdrawing that package by the incumbent government given that the Khan administration fell midnight 9 April) while the bulk of the rise in payment to Independent Power Producers (IPPs) under the head of subsidies — from the budgeted 511 billion rupees to 989 billion rupees — was subsequent to a deal with the IPPs, other than those established under the CPEC umbrella, that has to be supported; and (ii) while reliance on borrowing touched alarming levels during the Khan administration — foreign loans from 95 billion dollars to a high of over 140 billion dollars and domestic borrowing from 16.5 trillion rupees to over 27 trillion rupees yet, extremely disturbingly, the budget for 2022-23 envisages additional external borrowing of between 36 to 41 billion dollars this year alone and bank borrowing of 1.172 trillion rupees (against last year’s budgeted 681 billion rupees) and non-bank borrowing of 1.99 trillion rupees (against last year’s budgeted 1.24 trillion rupees). Or, in other words, the indebtedness is budgeted to rise to even more dangerous levels. Given that the country has to repay 21 billion dollars to external sources this year, as publicly acknowledged by Ismail, it is very concerning that the Shehbaz Sharif-led administration budgeted to borrow 15 to 20 billion dollars more to fund the budgeted one trillion rupee addition to current expenditure.

The jury is out on whether the Khan administration would have succeeded in generating as many concessional loans as the Shehbaz Sharif-led administration, particularly as Business Recorder has consistently argued that there was no option but to re-engage with the International Monetary Fund (IMF) for the success of the seventh review irrespective of whoever formed the government, to ensure a comfort level with multilateral and bilateral donors which, in turn, would increase the inflow of concessional funding, even though that would be at a high domestic political cost.

It is important to note that Ismail also noted that 1.2 billion dollars deferred oil facility and a deferred gas payment facility is also on the cards though the previous administration had also claimed that negotiations on deferring payments for fuel imports were near completion.

However, it needs to be acknowledged by all the politicians after the recent by-polls in Punjab, that the economy must be prioritised over politics which would require the Pakistan Tehreek-e-Insaf (PTI) to desist from upsetting the seventh/eighth review agreement with the Fund that, by and large, consists of time-bound reforms and structural benchmarks that were agreed during its tenure while the PML-N leadership would do well to follow the wise dictum of the proverb ‘people in glass houses shouldn’t throw stones.’

At present, the economy remains fragile and needless to add, the price is being paid by the general public in terms of higher headline inflation estimated at over 20 percent for June (on the back of higher utility prices sourced to Fund conditions as well as higher prices of petroleum and products due to the Russia-Ukraine war), an eroding rupee and a global economic scenario that the IMF warned has compelled it to downgrade global growth forecast from 6.1 percent in 2021 to 3.6 percent in 2022 and 2023; and beyond 2023 to 3.3 percent in the medium term. “Ukraine war induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7 percent in advanced economies, and 8.7 percent in emerging market and developing economies,” the IMF further stated — rates which are less than double in Pakistan today.

The PTI has registered an emphatic victory, winning 15 out of the 20 seats and one would urge the two protagonists to remain within the bounds allowed by the constitution in the provinces as well as in the centre and refrain from launching any sit-in that the country’s economy cannot withstand.

The agreement with the IMF must be honoured to ensure that the people of this country can see an end to the erosion in their quality of life by the Fund programme end scheduled for June 2023. We recognise that at a time of heightened political temperature it may be problematic for politicians to desist from playing politics but they should look at the hapless public that they represent before taking decisions that would make the life of the common man even more harsh than it is today. They are, therefore, required to prove that Pakistan, its people and economy come first before anything else. Actions truly talk.

Copyright Business Recorder, 2022


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