The Pakistani public is being subjected to extremely disturbing macroeconomic indicators with each subsequent update showing a worsening trend - data-set sourced to government entities, including the Pakistan Bureau of Statistics and on the website of the autonomous, at least in letter if not in spirit, State Bank of Pakistan.
Finance Minister Ishaq Dar blames the Khan administration for the situation though reportedly in his frequent private interactions with the party chief Nawaz Sharif, he also blames Miftah Ismail for the current economic impasse. Two observations are critical to lay responsibility where it undoubtedly lies.
First and foremost, irrespective of at best extremely limited and at worst negative clout within his own party (PML-N) in particular as well as the eleven coalition partners’ in general, Miftah Ismail signed on the dotted line with the International Monetary Fund (IMF) leading to the success of the combined seventh/eighth mandatory review mid-August 2022.
This was followed by the tranche release on the 2nd of September unequivocally indicating that the IMF programme was on track at the time Ishaq Dar took oath as the finance minister on 27 September. Thus to attribute the stalled ninth review on either the Khan administration or on Miftah Ismail is not tenable.
And two, the IMF ninth review was suspended (with the scheduled agreement dated 3 November 2022 in the previous review) due to two economically misinformed decisions associated with the period after Ishaq Dar took oath as the Finance Minister on 27 September 2022.
First, his decision not to implement the Memorandum of Economic and Financial Policies (MEFP) and the Technical Memoranda of Understanding that was associated with IMF’s seventh/eighth review till after the departure of the IMF mission on 9 February 2023.
The list of prior conditions without whose implementation the ninth review would have remained stalled therefore include the recent cumulative raise in utility tariffs (gas and electricity) and the mini-budget (through a raise in indirect taxes) whereas had these policy decisions been taken earlier they would have been relatively more phased out and therefore that much more bearable for the general public.
In addition, the recent announcement to provide free wheat flour to the poor (announced on 13 March) and cheaper petrol through cross subsidies (announced on 19 March) implies unbudgeted subsidies, a policy decision that the Fund opposed last year after the Khan administration’s announcement of a power and petrol relief package.
These new measures are ill thought-out and politically-motivated that may simply backfire as the mayhem at the site of parked wheat flour trucks has angered the public (with one death already reported) while the cross subsidy envisaged is possible only through petrol station staff acting as agents to ensure its success – staff who have neither the wherewithal nor the education to check complicated eligibility measures.
This has prompted the Fund to issue the following statement: “Fund staff are seeking greater details on the scheme in terms of its operation, cost, targeting, protections against fraud and abuse, and offsetting measures, and will carefully discuss these elements with the authorities.”
Second, Dar reportedly exerted pressure on the SBP to violate the letter and spirit of the ongoing Fund programme with respect to abandoning the market-based exchange rate in favour of a controlled rupee-dollar parity as he did in 2013-17. However, without the foreign exchange reserves to intervene in the market a grey market was created at great cost to the economy estimated at over 3 billion dollars to-date.
The market-based exchange rate policy was re-adopted on 27 January 2023 prompting the Fund to schedule a date of arrival to negotiate on the ninth review but bafflingly again abandoned mid-February this year - indicated by the re-emergence of the grey market. This reversal in policy around a week after the IMF team left the country exacerbated the trust deficit between Pakistan’s lead negotiator and the Fund staff.
Two inappropriate statements post-February 2023 are also cited as the raison détre for the widening trust deficit between the Dar-led Ministry and the IMF team that led to the Fund to uncharacteristically issuing clarifications. First, Dar’s statement in the Senate during the special golden jubilee session on 16 March created much furor notably that there will be no compromise on Pakistan’s nuclear and missile programme and “nobody has the right to tell Pakistan what range of missiles it can have and what nuclear weapons it can have”.
This was reminiscent of his statement in 2016, “we will not rollback our nuclear programme even if our debt swells to 100 trillion dollars”- a time when Dar’s influence within the cabinet was unbridled and his consistent forays in other portfolios tamely accepted.
Today there is an eleven-party coalition government led by Shehbaz Sharif and Dar should have known that his statement as the finance minister would be viewed as another impediment in the stalled IMF ninth review.
Dar tendered an explanation four days later on 20 March, claiming he was misquoted and that he was merely responding to a query only after the Resident Representative of the IMF issued the following clarification: “regarding recent speculation that programme discussions with the authorities for the ninth review…may have covered Pakistan’s nuclear weapons program, I want to be categoric that there is absolutely no truth to this or any insinuated link between the past or current IMF programme and decisions by any Pakistani government over its nuclear programme.” One would hope that this is a lesson learned for him that he must limit himself to his own portfolio.
Second, on 22 March 2023 Election Commission of Pakistan (ECP) delayed polls in Punjab to 8 October this year. The (ECP) order cites the provincial chief secretary as stating that “it shall not be possible for the Provincial Government to fund the elections…the provincial government is expecting a shortfall of 137 billion rupees in the receipts of Punjab on account of federal divisible pool share.
There is also an expected shortfall of 111.5 billion rupees in the province’s own resources. That 140.06 billion rupees as arrears yet to be received from the federal government as pending liabilities. The overall debt stock (foreign and domestic) of the province amounts to 1.328 trillion rupees.
The debt servicing amount has been raised to 128 billion rupees against the earlier estimation of 103 billion rupees during the current fiscal year due to volatility in forex rates.
The commodity debt of the province is expected to cross 1 trillion rupees at the end of the wheat procurement drive. Under the IMF programme Punjab has to maintain cash surplus of 413.9 billion rupees.” Ministry of Finance, the ECP order notes “has shown an inability to release funds due to financial crunch and unprecedented economic crises in the country.”
The Fund’s response is self-explanatory: “there is no requirement under the Extended Fund Facility programme which could interfere with Pakistan’s ability to undertake constitutional activities.”
There is clearly a widening trust deficit between the finance minister and the IMF not only in terms of actions but also statements. Surely, it is high time to review portfolios as it is leading to general public angst due to economically ill-advised measures which are at the cost of national economic interest.
Copyright Business Recorder, 2023
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