Ever since the incumbent government came to power some four months ago, all roads lead to the IMF (International Monetary Fund) doorsteps. Be it loans from donor countries and lenders, inflation, utility tariffs, fuel prices, business sentiment, fiscal and administrative governance, rupee strength, stock exchange performance, political stability and all that concerns the governance of the state had been linked to continuation of the IMF programme and release of the $ 1.1 billion tranche.
Never before has the country been so dependent on and subservient to a singular lender. This is the new low in the history of Pakistan. It brought to surface many stark realities. A nation has allies and friends as long as it can stand on its own feet based on mutual respect.
China, Saudi Arabia, the UAE and Qatar declined to lend a loan of a few billion dollars to Pakistan in the absence of an IMF programme. Checkmate, the nation literally had to get down on its knees by agreeing to all IMF conditionalities to secure the programme.
The IMF finally restored its programme and released the tranche of $ 1.1 billion. But, what next?
The IMF optics did unleash a burst of momentary positive sentiment in the market: PKR gained strength but only to weaken significantly within weeks. Beyond this, nothing changed for the better in the country’s fiscal and economic conditions. Both remain vulnerable. The International Monetary Fund (IMF) released its country report on 2 September 2022 that spells out the stark realities of the fiscal, economic, political and social vulnerability of the nation.
According to the country report, risks to Pakistan’s economic outlook and implementation of the programme remained “high and tilted to the downside” because of what it termed a “very complex” domestic and external environment. It says: “Pakistan’s economy has been under adverse external conditions, due to spillovers from the war in Ukraine, and domestic challenges, including from accommodative policies that resulted in uneven and unbalanced growth. Steadfast implementation of corrective policies and reforms remain essential to regain macroeconomic stability, address imbalances and lay the foundation for inclusive and sustainable growth.”
The report further says: “Pakistan plans to achieve a small primary surplus in FY2023 which is a welcome step to reduce fiscal and external pressures and build confidence. Containing current spending and mobilizing tax revenues are critical to create space for much-needed social protection and strengthen public debt sustainability.
Efforts to strengthen the viability of the energy sector and reduce unsustainable losses, including by adhering to the scheduled increases in fuel levies and energy tariffs, are also essential. Further efforts to reduce poverty and protect the most vulnerable by enhancing targeted transfers are important, especially in the current high inflation environment.
“The tightening of monetary conditions through higher policy rates was a necessary step to contain inflation. Going forward, continued tight monetary policy would help to reduce inflation and help address external imbalances. Maintaining proactive and data-driven monetary policy would support these objectives”.
As per the IMF report, a close oversight of the banking system and decisive action to address undercapitalized financial institutions would help support financial stability.
“Preserving a market-determined exchange rate remains crucial to absorb external shocks, maintain competitiveness, and rebuild international reserves,” according to the report. It believes accelerating structural reforms to strengthen governance, including of state-owned enterprises, and improve the business environment would support sustainable growth. Reforms that create a level playing field for business, investment, and trade are necessary for job creation and the development of a strong private sector.
The report has exposed the reality on ground. But who will act and make good its concerns and recommendations is a question mark? The political environment in the country is so charged that no one is in a position and has competence and commitment to act upon the complex and strategic issues raised in the report. The mindset is to go for a quick fix to sustain for the next few months.
Pakistan’s worries extend far beyond the IMF programme. The country is economically, politically and socially in a mess and it is all self-inflicted. Unless this reality is recognised, grasped and honestly addressed there is no chance of nation’s turnaround for the better.
The entire political setup of the country and all the institutions of the land without exception are in a state of flux, confused and embroiled in matters of no significance to the people of the land who are suffering multiple life threatening issues unleashed by the elite and self-appointed governors to manage the destiny of the nation and its people. The economic, political and social consequences of the devastating floods have yet to unfold fully.
These are indeed defining moments for the country and a message to those who mean some good for the country and its people.
Copyright Business Recorder, 2022