EDITORIAL: Federal Finance Minister Miftah Ismail in a press conference on Sunday acknowledged that there was one remaining prior condition for the seventh/eighth review report to be presented to the Board of Directors of the International Monetary Fund (IMF) for formal approval of the 1.177 billion dollar tranche release.
He did not mention what precisely the condition was, fuelling concerns within the general public of a utility rate rise or a tax rise that would further constrain their disposable income. One would therefore urge the Finance Minister not to spread uncertainty within the general public by such ill-advised statements that would lead to panic in an already unsettled market environment which, in turn, may raise the inflation rate even higher than the Sensitive Price Index of 37.7 percent for the week ending 28 July 2022.
Speculation in the federal capital is rife that given the recent rise in the price of electricity and petroleum products, perhaps the remaining prior condition relates to the rise in the gas prices which have yet to be notified though the intent of the government to do so has been reported in the media.
Others maintain that the prior condition may be with respect to the inflows pledged by friendly countries; however, it is unclear whether these inflows were contingent on the successful seventh/eighth review (which has been declared by the IMF on its website) or Fund disbursement.
It is important to note that there is a comfort level within the Shehbaz Sharif-led administration that pledges by Saudi Arabia, the United Arab Emirates, Qatar and China, amounting to well over 4 billion dollars, will be disbursed within the calendar year.
Ismail also claimed that imports declined by 2.7 billion dollars in July in comparison to June this year — to a total of 5 billion dollars from the 7.7 billion dollars in June. Neither the State Bank of Pakistan nor the Pakistan Bureau of Statistics has uploaded details of which imports registered a decline in dollar terms; hence it is not clear whether the decline is due to the government of Pakistan policy, which banned import of a host of luxury items though later reports indicated that the ban was never implemented, or due to the fall in the international commodity prices which had formed a significant amount of our total import bill including: (i) price of Brent crude fell from 122.71 dollars per barrel in June to 111.98 dollars in July; and (ii) as per Bloomberg, in the first week of July worries over surging global food costs began to ease as prices of everything, including cooking oil to wheat and corn, tumbled to the lowest levels in months due to a rise in supplies and investors reduced their bullish bets on futures market.
The remaining press conference focused on the narrative that has yet to find traction: the incumbent government has helped the country avert sovereign default at the cost of political capital. If this claim is based on the government ending the unfunded relief package extended by former Prime Minister Imran Khan on 28 February and his exit from government on 9 April (a period of around five weeks) then an explanation is required as to why this government continued the package for another six weeks ending it partially by 27 May and the completely by 3 June? If this claim refers to the capacity of the incumbent government to procure loans from friendly countries then the question arises as to why this government raised its 2022-23 budgeted expenditure by a whopping trillion rupees given the paucity of resources. And finally, if this claim is based on the fact that the IMF package has been restored then it is necessary to acknowledge that notwithstanding the relief package and failure to implement the politically harsh upfront agreed sixth review conditions by the Khan administration had the government survived the vote of no-confidence the policies would not have varied significantly from what are being implemented today.
In a rare move to assure the investors in particular and the people in general, the ministry of finance (MoF) and the State Bank of Pakistan (SBP) issued a joint statement on the current economic challenges and their strategy for this fiscal year (FY23).
This statement is basically a reiteration of the assertions that have been made by the MoF and the SBP during the last few weeks that have not altered the negative sentiment in the markets in any significant way.
The conclusion sadly is that neither the PTI administration (in 2018) nor its successor the PDM administration has exhibited any capacity to think out-of-the-box solutions and instead have relied entirely on implementing the Fund’s conditions to claim success in stabilising the economy and averting default.
Copyright Business Recorder, 2022
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