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The political landscape has changed. The change brought in by the VoNC through combined efforts of virtually all the political parties (along with Mr. X and Mr. Y) is rejected by the public. Had there been no VoNC, PTI’s popularity could have waned on its own and the PMLN Punjab vote could have remained intact. That is the past. The wave is clearly with the PTI today.

The question is how long will the PDM government stay at the center and how would that impact the continuation of the IMF programme which is imperative for economic sustainability and stability. Well, the general opinion is that after losing Punjab, PDM days in the center are numbered. That has created another wave of political uncertainty and the markets – currency and stock—went down today. And at the center of this uncertainty lies the unclarity on the fate of IMF programme.

It is a tough programme. And the next ten months are not easy economically for any government to be in power. IMF has stringent conditions and seeing the adverse macroeconomic scene, there seems to be no flexibility in it. It is a narrow path to walk. There is little to no room for any deviation or adjustments on the conditions that have been agreed upon with the IMF.

The Fund can work with any government. This current government, interim setup or with the new government to be formed after the next elections (provided that the elections are being conducted before June 23). As per sources, there are conditions which are frontloaded (to be happened before the board approval which is expected in August) and others are back loaded –which are necessary for approval of the three upcoming reviews.

Some frontloaded conditions were to end the subsidies and have certain level of taxes on petroleum. Then ending of subsidies on electricity. And there are pre-agreed timings on imposing taxes on petroleum, passing on of pending annual and quarterly tariff revision of electricity. Similar is the case of gas. The timeline starts from now to the end of programme in June and whosoever in power will have to adhere to the commitments with the IMF. Otherwise, the programme would be in jeopardy at any given time.

Then there are conditions on lifting foreign exchange reserves to a certain level. That is not frontloaded. However, the commitments on these inflows from debtors/investors is frontloaded. The number is around $4 billion. The sitting government has to have commitments from (most likely) friendly countries on direct cash support, deferred oil/LNG facilities and buying of government shares. There could be other ways of getting commitment for financing/investment, all IMF needs is some form of assurance from these countries before the board approval.

Money can come later but the commitments are imperative. Then IMF can help in providing financing against SDRs. The PDM government had plans to get money from friends like Saudi Arabia, UAE, and Qatar amongst others. Now the fate of the government is not clear; and markets are having anxiety.

Some fear that the PDM government could adopt a populist approach after PTI’s landslide victory in the Punjab by-elections. Will the government be able to increase the electricity prices still? Will the government be able to increase the Petroleum levy? There are front loaded measures and it remains to be seen how the PDM government would deal with it.

Then there are continuous measures, such as there are MOUs signed with the provinces on commitment to show provincial surplus. This would be quarterly reviewed by the IMF and the provincial governments must adhere to the levels of quarterly surplus agreed with the IMF. And on the timeline of increase in energy prices. Markets are getting jittery on this. Clarity is warranted while the uncertainty continues till the time of next elections are announced.


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Fazal Jul 19, 2022 02:17pm
"The plot thickens…" It's more a case of game over
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