EDITORIAL: Credible reports emanating from the Ministry of Finance reveal that the International Monetary Fund (IMF) is requesting detailed expenditure and revenue figures till the scheduled programme end on 30 June 2023 rather than the figures for the quarter (three months) past, the implementation of prior conditions and agreement on structural benchmarks/quantitative targets agreed for the next three months.
As per the seventh/eighth review documents; three reviews remain outstanding – the ninth review dated 3 November, the tenth review dated 3 February 2023 and the final review dated 3 May 2023.
The delay in the ninth review may compel the IMF and the Pakistan authorities to combine the ninth and tenth review – a trend in the ongoing programme that was attributed to Covid-19 when the second to the fifth reviews were combined (though the actual amount disbursed was 350 million SDRs, less than the 1,544 million SDRs envisaged to be disbursed during the three reviews in the programme documents) and the seventh/eighth reviews with 894 million SDRs disbursed (though it was originally envisaged to disburse 560 million SDRs during each of the two reviews).
At the present moment in time, subject to the success of the pending review(s) 1,950 million SDRs have been approved by the Fund Board for disbursement to Pakistan – an amount that requires the success of the remaining reviews. To-date Pakistan has received 3,018 million SDRs under the ongoing programme that was extended till end June 2023 on 3 July 2022 by the Fund Board, re-phased and augmented access of SDR 720 million that will bring the total access under the Extended Fund Facility to about 6.5 billion US dollars.
Given the consistent requirement during the ongoing Fund programme for the government to not only ensure rollover of loans by friendly countries but also an augmentation of loans from them (estimated at 4.2 billion dollars - a pledge they have made directly to the Fund), it makes the need for an agreement on the next review(s) of critical economic importance as it would then allow the government access to pledged support from friendly countries.
Foot-dragging in meeting the conditions and structural benchmarks have clearly been evident during the past two reviews – sixth, seventh/eighth – sourced to a newly-appointed finance minister seeking a phasing out of the harsh upfront conditions. Sadly, it increasingly appears that the ninth review is being held hostage for the same reason.
The bald unpalatable fact is that the Fund has been resistant throughout the programme to a phasing out of the conditions (except during the year and a quarter when the world was struggling to cope with Covid-19) and therefore is unwilling to compromise now.
Given the less than seven months remaining, the Fund staff is reportedly seeking not a quarterly report on what the government intends to generate in revenue and where it intends to spend its revenue (including the remaining around 35 billion dollars that it has budgeted to borrow in the current year) but data for the rest of the year.
This may explain why the government has not lowered the price of petrol and High Speed Diesel for the next fortnight in spite of a decline in their international prices and raised petroleum levy on the two main contributors to revenue that is not shared with the provinces. However, the expected rise in the revenue from this decision is unlikely to meet the large unbudgeted subsidy of a 100 billion rupees to exporters by providing them 19.99 rupees per unit of electricity (against the 40 rupees per unit payable by the domestic consumers) and the provision of 13 rupees per unit to farmers with tube wells under the agriculture package.
And, while revenue for the first five months of the year has surpassed target yet the non-tax revenue that includes the 750 billion rupees from petroleum levy was down by 15.5 percent July-September 2022 compared to the year before and by failing to provide figures for October the latest Economic Update dated 24 November 2022 raises some questions about the possibility of a further shortfall in the first quarter.
Jihad Azour, director of the IMF’s department dealing with Pakistan, is already on record as having stated that such subsidies are largely regressive and that subsidies must be targeted to the poor only. The Public Sector Development Programme disbursements are on hold at present and while there is a compelling need to rehabilitate the infrastructure destroyed during the recent floods yet the government is reportedly still engaged in formulating a framework that has been requested by the Fund.
In the context of non-tax revenue shortfall and recent decisions that are clearly violative of the seventh/eighth agreement as well as the approaching scheduled end of the programme it is little wonder that the Fund is requesting a seven-month plan with respect to revenue sources and expenditure priorities. It is disturbingly no longer a matter of good accounting but one of out-of-the-box economic thinking that would have severe political repercussions but which would have positive economic fallout that in turn would slowly but surely strengthen political support.
Copyright Business Recorder, 2022