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EDITORIAL: Senior officials of the Ministry of Economic Affairs while briefing a National Assembly Standing Committee acknowledged that most of the budget macroeconomic projections, including the Gross Domestic Product (GDP) growth, debt to GDP ratio and the budget deficit, would have to be massively revised on account of unabated depreciation of the rupee, devastating floods (with severe negative implications on all sectors including agriculture and infrastructure) accounting for a decline in the country’s rating by international rating agencies that was also attributed to political uncertainty.

This rather obvious statement was followed by the admission that work on revising the figures would commence mid-October to be consolidated in December.

This delay may be for two reasons. First, the flood damage assessment is most likely to be finalised by then; Ayaz Sadiq, Minister for Economic Affairs, told the Standing Committee members that it would be finalised by 15 October (with the Damage Needs Assessment completed by 16 September by multilaterals including World Bank, UNDP and ADB), which would provide critical input for projecting the GDP growth rate, the debt required to be incurred to meet the country’s foreign exchange requirements and last but not least the budget deficit that would be incurred to meet the serious challenges posed by the floods.

In addition, as the rupee erodes in value the interest payable on foreign loans as a component of the budget would rise significantly and in this context it is relevant to note that the rupee-dollar parity taken in the current year’s budget is 183 while the interbank rate has risen to 236 rupees to the dollar - nearly, a 29 percent erosion.

And second, the ninth review of the International Monetary Fund (IMF) is scheduled for 3 November which would necessitate sharing all macroeconomic data with the Fund staff and hopefully by then more accurate projections would be possible.

It is noteworthy that many of the unrealistically optimistic budgeted projections made in June this year were challenged not only by domestic economists but also multilaterals before the onset of the floods, indicated by their own scaled down projections on their websites, and one would hope that by December these projections are more realistic than has been the trend in recent budgets.

What would also undergo a massive revision is the budgeted allocation under several heads. Administration after administration has been guilty of overstating the Public Sector Development Programme (PSDP) in budgets, to reflect their commitment towards development is more than their predecessors, but revising it massively downward as and when the budget deficit becomes unsustainable at the end of the year.

Ayaz Sadiq also told the standing committee members that 370 million dollars has already been diverted from different development projects for flood-related assistance. In the current year, Miftah Ismail, the Finance Minister, has already declared that the funds for the flood-hit would be channelled through the Benazir Income Support Programme but would be sourced to the PSDP.

One can only hope that there is a sincere effort to at worst reduce total budgeted outlay by at least one trillion rupees, the amount it was raised in budget 2022-23 against the budgeted outlay last year, and at best slash outlay by two trillion rupees with the objective of contributing to the containment of the budget deficit instead of relying on external sources that are getting increasingly more expensive as the rupee value erodes.

It is important to note that Pakistan continues to face a fragile economy, made all the more fragile by failure to raise the floods issue with the IMF during the seventh/eighth review, failing to firm up the pledged assistance of 4 billion dollars from friendly countries (though rollover of 7 billion dollars has reportedly taken place), and last but not least agreeing to harsh upfront conditionalities as the floods continue to ravage large parts of the country that massively undermined the overoptimistic budgeted projections of macroeconomic indicators.

Copyright Business Recorder, 2022

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Gauravi Pal Sep 20, 2022 04:07pm
The staff level agreement was finalized mid July when there were no floods. Pakistan reneged on agreement with IMF not once but 3 times after the EFF was kickstartef in July 2019. Of course IMF will demand prior actions considering it is difficult to trust Pakistan. Pakistan tried hard to negotiate easier terms but IMF did not agree. You may recall that Miftah said he had told IMF petrol prices could not be raised. IMF did not buy that and the talks ended inconclusively. The notion that Pakistan had a choice to go के n for an easier program but willingly went for a more difficult program is laughable. IMF is lender of last resort. It is not like you had a dozen lenders beseeching you to take a loan. You needed the IMF loan to avoid default and for that you had to agree to their conditions.
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