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PESHAWAR: Pakistan Institute of Development Economics (PIDE) issued a research report regarding 23rd International Monetary Fund (IMF) programme for Pakistan, which stated that the authorities of Pakistan are allowed to draw USD 1.1 billion to address fiscal and external challenges.

The IMF board has also approved the extension of the EFF till June 2023 along with extra Special Drawing Rights (SDR) of 720 million, bringing the total access under the EFF to about USD 6.5 billion.

According to press release here Sunday, Dr. Nadeem ul Haque, Vice Chancellor, and Dr. Durre Nayab Pro Vice Chancellor of Pakistan Institute of Development Economics (PIDE) said that the review report has also identified some priority measures to be considered by the Pakistani authorities, such as the implementation of an approved budget, market-determined exchange rate policy, proactive and prudent monetary policy, the expansion of the social safety net, and structural reforms related to the performance of state-owned enterprises (SOEs) and governance.

The report said the set of measures that have been identified contains both short-term and medium-term measures to promote long-term growth.

In this regard, the PIDE has also been working extensively to identify the measures that are necessary to remove the bottlenecks in economy to improve productivity and increase growth. The objective of the PIDE report is twofold, i.e., a commentary on the measures suggested by the review report and what other measures should be part of the program.

Dr. Nadeem ul Haque said that the PIDE reform agenda (RAPID) noted that Pakistan needs a sustainable growth rate of around 8 percent over a long period, given the population pressure.

However, the review report showed that the economy of Pakistan started overheating at a growth rate of around 6 percent.

PIDE noted that this is primarily due to the economy’s low investment rate and a worsening long-term trend of investment as a percentage of GDP.

Additionally, there are substantial regulatory and productivity constraints in the economy that the program should be addressing.

According to the PIDE’s report on the IMF’s current program, the review report projects a 47 percent reduction in the current account deficit in FY-2023, with the deficit shrinking from USD 17.3 billion in FY-2022 to USD 9.3 billion in FY-2023.

These projections are based on the assumed increase in the export bills by USD 3.2 billion and a USD 3.3 billion decrease in the import bills.

Furthermore, the projections also assumed adherence to the ‘market-based’ exchange rate.

Now the question arises, what will be the real effective exchange rate (REER) given that we have imposed bans, regulatory duties, surcharges, extreme foreign exchange controls, and heavy foreign exchange interventions?

According to the press release, the circular debt first broke out in 2006. Since then, this is the third IMF program focusing on a deteriorating circular debt with little impact.

We always emphasize increasing prices and passing on the burden to consumers without worrying about structural losses.

PIDE notes that tariff increases without structural changes can increase inefficiencies and sector losses.

Consumer-end tariffs are highly sensitive to the losses in the transmission and distribution systems and bill recoveries. Per unit increase in price by Rs. 1 adds to an additional loss of more than Rs 10 billion.

Copyright Business Recorder, 2022

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