EDITORIAL: Reports emanating thus far from the ongoing discussions between the International Monetary Fund (IMF) and Pakistan authorities indicate that the Fund not only restated but is insistent that all prior conditions (which have become all the more politically challenging due to failure to implement them on time as well as reversal of post-October 2022 policies in flagrant violation of the spirit if not the letter of the seventh/eighth review) be met, while other reports suggest that the Pakistan team, once again, requested that the conditions be phased out.
Clearly, IMF’s leverage today is paramount in marked contrast to Pakistan given not only the changed geo-political considerations but also our appallingly low foreign exchange reserves which are less than two weeks of imports coupled with the linkage of all pledged inflows from friendly countries - rollovers and additional support - with success of the ninth review; additionally, Pakistan also has a very poor history of implementing reforms as agreed time and again during the past twenty-two IMF programmes or, in other words, pledges that reforms will be implemented this time around are unlikely to be taken at face value which explains the Fund’s insistence on upfront harsh conditions.
While the Fund is likely to meet an entire range of stakeholders, including those ministries/departments in a financial crisis requiring massive reforms particularly the power sector (with a circular debt of over 2.5 trillion rupees) and Federal Board of Revenue (FBR) that continues to rely on indirect taxes, whose incidence on the poor is greater than on the rich, widely regarded as low hanging fruit, and misrepresenting withholding taxes collected under the sales tax mode by crediting them under direct tax collections, a charge leveled by the Auditor General of Pakistan last year with the suggestion that this practice be abandoned though to no avail.
Reports indicate that the Fund is unlikely to be swayed by requests for a deferral in meeting the budgeted targets, be they in terms of raising electricity and gas tariffs, be they in terms of implementing personal income tax reforms or in generating the budgeted amount under petroleum levy (which would require upping the current 50 rupee per litre limit from parliament), be it in terms of slashing current expenditure, other than under Benazir Income Support Programme and debt servicing, though the jury is still out on whether the government will be able to convince the Fund that defence needs cannot be curtailed with the rise in terrorist attacks and neither can the outlay on civilian administration for fear of shutting down of government. It is important to note that these items would doubtless be negotiated and one would hope that the deal struck would massively reduce all procurement, other than what is related to combatting terrorism, for the next couple of years as well as a freeze in wages which incidentally is already being experienced by private sector employees.
Reports also suggest that the SBP will be asked to raise the discount rate by at least 200 basis points – a request that is unlikely to remain pending till the next scheduled Monetary Policy Committee meeting on 16 March and it is very likely that an announcement to this effect will be forthcoming in the current month.
Control over the exchange rate, loosened since 26 January, will have to continue and is likely to emerge as the major policy tool to check imports rather than extremely stringent administrative measures that account for over 5000 containers at Karachi port today, inordinate delays in opening letters of credit even for critical cooking oil and wheat imports, and the exodus of remaining foreign direct investors due to inability or failure to allow repatriation of profits.
The Fund will, however, as per procedure of all multilaterals, also engage with the provinces and seek their input into the 750 billion rupee consolidated surplus that the four provinces agreed to back in July last year in a signed Memorandum of Understanding – a surplus that was to be part of the revenue stream of the federal government. And finally, the Fund staff will also engage with other stakeholders, including non-government organisations and civil society, to ascertain their views on the existing state of the economy.
The expression “many a slip between the cup and the lip” no longer applies to our negotiations with the Fund as the leverage of our incumbent economic team leaders, based on their extremely flawed decisions and frequent expression of bravado against implementing Fund’s prior conditions, is almost nil.
However, one must not lose track of the obvious: that the stipulated reforms are necessary if we are to ever come out of the cyclical economic impasse, every two to three years, requiring ever more borrowing – a situation that disturbingly is premised on the elite capture of our resources, corruption and, last but not least, poor governance.
Copyright Business Recorder, 2023
Comments
Comments are closed.