EDITORIAL: The Federal Finance Minister, Miftah Ismail, held yet another press conference with the ostensible objective of arresting the rupee slide by reiterating the assurance that “friendly countries” have pledged assistance, read loans at concessional rates, of over 8 billion dollars till December this year.
And itemized the sources as follows: (i) multilateral support including International Monetary Fund, World Bank, Asian Development Bank and Islamic Development Bank; (ii) 1.2 billion dollar deferred oil payment facility; (iii) approximately 2 billion dollar deferred LNG payment facility; (iv) parking a significant amount in the country’s stock market that would raise portfolio investment which is susceptible to an outflow at the press of a button; and (v) parking in the State Bank of Pakistan that may include SDRs of a country held by the IMF.
Needless to add, this large amount of anticipated inflows is linked to the disbursement of 1.177 billion dollars subsequent to the seventh and eighth staff-level review agreement reached earlier this month that is unlikely, according to Ismail, till mid to late August after the Fund’s Board approves it.
These claims have been repeatedly made by Ismail during the past three months — it is pertinent to recall that the claim of deferred oil facility was even made by his predecessor Shaukat Tarin on 10 February this year on the floor of House wherein he claimed that Pakistan would commence using Saudi oil facility from March 2022 onwards — and therefore the rupee slide is unlikely to abate until and unless the inflows actually begin. ‘Seeing is believing’ sentiment is pervading the market and repeating the same mantra again and again is unlikely to convince the market.
The other component of the 11-party coalition government’s narrative today is that they are taking extremely tough politically challenging economic decisions, necessary after the three-year eight months of the Pakistan Tehreek-e-Insaf (PTI) administration’s ‘misrule’, and they are willing to do so at the cost of their own political compulsions.
This narrative is losing steam and is being increasingly questioned by independent economists as well as the informed public. The former, including the Business Recorder, marvel at this statement given that the expenditure side of the budget 2022-23 is a treatise on ensuring that political compulsions remain paramount with the untenable rise of a trillion rupees in this year’s budgeted expenditure — an outlay that is all the more difficult to support given last year’s budget deficit of an unsustainable 9.1 percent of GDP, a highly inflationary policy.
To plug the gap the government strategy is: (i) reliance on external funds and with an estimated 21 billion dollars required to stave off the possibility of any default the remaining 15 to 20 billion dollars repeatedly cited as the requirements for the current year by Ismail would be for strengthening foreign exchange reserves and budget support; and (ii) domestic revenue, and here the government capitulated to the IMF’s demand to tax at the rate of 2.5 percent those with a monthly income of between 50,000 and one lakh rupees and 12.5 percent on those earning one to two lakh rupees — a group that is already bearing the brunt of headline inflation of over 20 percent, the rise in utility rates and the rise in petroleum and gas prices.
The fact that salaries of government servants have been raised (the private sector cannot do the same, given the ongoing economic impasse) and together with cabinet members they continue to visibly enjoy perks at the taxpayers’ expense ranging from free housing to free to cheaper utilities/transport, applying the concept of sacrifice is elusive.
In addition, amending the National Accountability Act that may have been abused against many incumbent cabinet members during the PTI administration has, as per the Fund’s press release dated 13 July announcing the staff-level agreement, raised concerns amongst donors leading to the demand and acceptance by the government to undertake a comprehensive review of anti-corruption institutions, including National Accountability Bureau (NAB), to enhance their effectiveness.
To keep on parroting lack of leverage with the Fund and attribute it entirely to the agreement reached with the PTI administration, though true is an invalid crutch because of the current economic team’s failure to undertake major expenditure compression which required sacrifices by the recipients with obvious political implications and continued heavier reliance on external sources. This is hardly a prescription for treating the economic malaise.
Copyright Business Recorder, 2022
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