EDITORIAL: In a televised address to the nation, Finance Minister Ishaq Dar explained his reason for not attending the World Bank/International Monetary Fund (IMF) spring meetings to allay already jittery market fears that the Fund’s ninth review has been further delayed – fears reflected by the 4.2 percent decline in market capitalisation end-March this year compared to March 2022 and by 12.5 percent 29 March 2023 compared to 1 July 2022 in rupee terms and by 36.8 percent in dollar terms.
The annual meetings of the Bretton Woods development finance institutions (DFIs) are largely focused on a regional/global agenda, not on a stalled debtor country-specific programme, and routinely comprise of meetings of country groupings (G-20, G-24), seminars focusing on policymaking, academia, civil society, private sector and media to engage in policy dialogue on pressing global economic and financial issues, civil society forums and of course press conferences of senior leadership of the DFIs.
After dismissing reports that he had been stopped from attending the annual meeting by the Fund as “Pakistan is a member of the IMF and not a beggar” or that he had failed to secure an appointment with the Managing Director IMF and/or the World Bank President - positions that, if past precedence is anything to go by, have shown little, if any, inclination to influence the conditions of a particular ongoing programme/project - Dar maintained that the cancellation of his visit was entirely due to the prevailing “constitutional crisis” in the country.
And hastened to add that Pakistan had met all the IMF’s ‘prior’ conditions and after the Saudis reconfirmed 2 billion dollar pledge made in writing in the seventh/eighth review the only missing link in the ninth review is the one billion dollars from the UAE, which was expected soon.
There is ample evidence that the delay in the ninth review was due to the Fund requirement of reconfirmation of pledges in writing by the three “friendly” countries – a requirement that may have surfaced after the Saudi Finance Minister Mohammad al-Jadaan stated on 18 January 2023 in Davos Switzerland, that the Kingdom was changing the way it provides assistance from previously giving direct grants and deposits unconditionally to linking assistance to reforms, adding that “we need to see reforms. We are taxing our people, we are expecting also others to do the same.”
Supporters and critics alike are in agreement that the Fund programme is critical in view of the current appalling state of the economy, which is amply reflected by government data uploaded on the Finance Division’s and State Bank of Pakistan’s websites: (i) consumer price index for March 35.4 percent, up by 7.8 percent from January’s 27.6 percent up to which time Dar had not implemented any of the agreed reforms, including tariff upgradation, the main reason for the stalled ninth review.
However, the average national CPI July-March this year was 27.26 percent against 10.77 percent in the comparable period of last year (with Imran Khan’s electricity and petrol relief package applicable from 1 March to 9 April 2022 while the incumbent government allowed it to continue till 27 May); (ii) foreign exchange reserves of 4.2 billion dollars as on 31 March 2023 - less than two months’ of imports if the international prices of oil do not rise further; (iii) remittances down by 10.9 percent July-February 2023 against the comparable period of the year before due to the flawed policy of controlling the rupee-dollar parity with inadequate reserves to intervene in the market that led to a grey market; (iv) 21 percent decline in imports, including imports of raw materials and semi-finished products, given the limitations placed on dollar transactions, including opening letters of credit that led to a 69.7 percent decline in exports, and negative 4.4 percent large-scale manufacturing growth (July-January); (v) credit to private sector down by 46.6 percent; and (vi) fiscal deficit rise by 4 percent.
Bafflingly, these appalling figures did not deter Coordinator to the Prime Minister on Economy and Energy Bilal Azhar Kiyani to claim that the incumbent government had successfully averted a looming default and made significant progress towards stabilising and rebuilding the national economy on a sustainable basis. The figure he cited was the reduction in primary surplus from 0.9 percent last year to 0.6 percent this year – a figure that does not take account of interest payments as and when due and considering that the incumbent government’s reliance on domestic borrowing (external borrowing remains subject to the success of the ninth review) has risen from 27 trillion rupees in April 2022 to over 33 trillion rupees at last count – a rise of a whopping 22 percent, with severe inflationary consequences, a better figure to quote would have been the budget deficit.
Kiyani also accused the Khan administration of pushing the country towards default, a claim that ignores the large number of containers at ports, which are not being cleared due to regulatory measures on foreign exchange, adding that the previous government was also responsible for the 17.4 billion dollars current account deficit, a deficit that was 2.6 billion dollars lower than what the previous government inherited in 2018.
Externalizing the reasons for sustained failures in domestic policy and not accepting the ground realities is a luxury that the eleven coalition partners can no longer rely on and expect to be believed.
Copyright Business Recorder, 2023
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