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Setting the bar unrealistically high or looking at filling the glass up to more than capacity by any administration can be supported on the grounds that it may propel the relevant official(s) to strive harder to achieve a salutary goal; but if the projection is premised on conditions highly unlikely to be met then making such a projection can be foolhardy as well as dishonest especially when the country is on an International Monetary Fund (IMF) programme – foolhardy because it under-estimates the intelligence of key stakeholders (domestic independent economists as well as the relevant staff of multilaterals/bilaterals/rating agencies) and dishonest because it deliberately misleads the general public.

In Pakistan it has been rare for one ministry to be at odds with projections of another especially where the powerful ministry of finance is concerned but that is precisely what is ongoing today.

The Ministry of Planning, Development and Special Initiatives is reportedly at odds with the Finance Ministry over the economic framework, a critical document for submission to the IMF (besides meeting pending prior conditions) to trigger ninth review negotiations, with the former projecting the Gross Domestic Product (GDP) growth rate for the current year at 2.3 percent while the latter is claiming a rate of 2.8 percent.

In this context it is relevant to note that the IMF has not changed its projection of 3.5 percent for the current year on its website, a projection at odds with the more realistic figure cited by the World Bank of 2 percent in its October 2022 Pakistan Development Update: Inflation and the Poor where it appropriately argues that “the slower growth reflects damages and disruptions caused by catastrophic floods, a tight monetary stance, high inflation and a less conducive global environment.”

Considering that multilaterals proactively harmonize their projections/strategies/loan conditions one may assume that the higher growth projection by the IMF is pending an update subsequent to the successful completion of the ninth review when detailed data will be shared by Pakistan authorities as would the implementation status of prior conditions/time-bound structural benchmarks/quantitative targets, many of which are pending.

The budgeted 5 percent projection was an over-estimate even though it was made before the onset of the floods given the tight monetary and fiscal policies that were subsequently agreed under the seventh/eighth reviews (dated 16 August).

No doubt the then economic team leaders may claim it was a legitimate projection end-May/first week of June as these tight fiscal and monetary policies had not been formally agreed to till the middle of August; be that as it may, this explanation is hardly credible as the then economic team leaders had already interacted several times with the Fund staff (including submitting the entire budget for the Fund review) therefore they had a fairly good idea of IMF concerns including the Fund’s insistence on implementing all upfront conditions before the review would be declared successful – conditions that the Pakistan authorities met which then led to the release of the tranche.

The question as to why the Finance Ministry would project a higher growth rate than the Planning Ministry is because that would allow for lower targets of key economic variables as a percentage of GDP for the current year than were agreed with the Fund in the seventh/eighth reviews notably the budget deficit and the primary deficit budgeted at negative 4.9 percent and plus 0.2 percent, respectively. The tax-to-GDP ratio however will be lower reflecting badly on the performance of Federal Board of Revenue but one assumes that in that case the focus would be on the rise in tax collections compared to the year before.

Prior conditions have been violated three times in October alone, which should be a source of concern: (i) on 6 October Ishaq Dar agreed to a 19.99 rupee per unit of electricity (all inclusive) to the five export sectors at an additional unbudgeted cost to the taxpayers of 100 billion rupees; (ii) the decision to keep the discount rate unchanged at 15 percent on 10 October when core inflation was 14.4 percent in September and 14.9 percent in October and Consumer Price Index to which the discount rate was linked by the previous Monetary Policy Committee was a high of 23.2 percent in September and 26.6 percent in October; and (iii) a 1.8 trillion agricultural package announced on the last day of October by the Prime Minister however with the bulk of this package consisting of loans to farmers it is not clear how much additional unbudgeted funding would be required.

Additional expenditure due to (i) and (ii) will have to be funded from one source or another before the ninth review negotiations can reach fruition. And it should be a matter of serious concern to the eleven party government as well as the general public that the Ministry of Planning, unlike its past routine practice, has not uploaded any disbursements under the Public Sector Development Programme (budgeted at 808 billion rupees) since the start of the current fiscal year (1 July), prompting sceptics to maintain that the development projects are being severely curtailed to fund the government’s support for the elite.

Slashing PSDP to achieve the agreed deficit, available during the previous 22 Fund programmes, may no longer be available to the government – a fact that has yet to be grasped by the economic team leaders. Azour, Director of Middle East and Central Asia Department, IMF, stated on 13 October 2022 that “on the issue of subsidy, as in other parts of the world, subsidy that is targeted to support certain items has proved not to be very effective. I would say it has proved to be very regressive.

And in our regional economic outlook we are again looking at this issue that is showing that this is not the best way to use the very limited fiscal space that exists. Therefore, we are encouraging Pakistan as well as also other countries to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it…it’s very important to use this moment where challenges are mounting, where increase in prices is hurting, to reallocate the resources for those who need it most…this is part of what is needed in order to provide the right protection for those who need it at the time where inflation is very high.”

To conclude, the Fund may be convinced to support increased outlay on Benazir Income Support Programme but not to provide massive electricity subsidy to the exporters, nor to any additional package to the farm sector unless it is dedicated to the subsistence farmers wiped out financially after the floods.

Copyright Business Recorder, 2022


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