AVN 51.24 Increased By ▲ 2.18 (4.44%)
BAFL 28.67 Increased By ▲ 0.12 (0.42%)
BOP 3.62 Decreased By ▼ -0.01 (-0.28%)
CNERGY 3.27 No Change ▼ 0.00 (0%)
DFML 10.74 Decreased By ▼ -0.06 (-0.56%)
DGKC 52.60 Increased By ▲ 0.62 (1.19%)
EPCL 43.90 Increased By ▲ 0.30 (0.69%)
FCCL 12.41 Decreased By ▼ -0.01 (-0.08%)
FFL 6.20 Increased By ▲ 0.04 (0.65%)
FLYNG 5.99 No Change ▼ 0.00 (0%)
GGL 10.30 Increased By ▲ 0.04 (0.39%)
HUBC 68.66 Increased By ▲ 0.16 (0.23%)
HUMNL 5.84 No Change ▼ 0.00 (0%)
KAPCO 22.60 Decreased By ▼ -0.05 (-0.22%)
KEL 1.84 Increased By ▲ 0.01 (0.55%)
LOTCHEM 29.50 Increased By ▲ 0.60 (2.08%)
MLCF 28.70 No Change ▼ 0.00 (0%)
NETSOL 81.35 Increased By ▲ 4.45 (5.79%)
OGDC 79.90 Increased By ▲ 1.50 (1.91%)
PAEL 9.76 Increased By ▲ 0.09 (0.93%)
PIBTL 4.31 Increased By ▲ 0.10 (2.38%)
PPL 61.65 Increased By ▲ 1.16 (1.92%)
PRL 14.43 Decreased By ▼ -0.05 (-0.35%)
SILK 1.10 Increased By ▲ 0.04 (3.77%)
SNGP 42.98 Increased By ▲ 0.48 (1.13%)
TELE 7.22 Increased By ▲ 0.12 (1.69%)
TPLP 13.21 Increased By ▲ 0.44 (3.45%)
TRG 99.00 Increased By ▲ 2.87 (2.99%)
UNITY 15.40 Increased By ▲ 0.17 (1.12%)
WTL 1.19 Increased By ▲ 0.01 (0.85%)
BR100 4,190 Increased By 29.8 (0.72%)
BR30 14,589 Increased By 182.3 (1.27%)
KSE100 41,904 Increased By 217.8 (0.52%)
KSE30 14,804 Increased By 61.5 (0.42%)
Follow us

EDITORIAL: A statement issued by the Ministry of Finance has revealed that the economic team led by Finance Minister Ishaq Dar held a virtual meeting with the International Monetary Fund (IMF) team headed by Jihad Azour, Director of the Middle East and Central Asia Department that processes loans to Pakistan.

A tweet by the Ministry of Finance contended that “they discussed progress on IMF program and implementation of prior actions. Azour expressed confidence that SLA (staff-level agreement) is expected to be signed soon to be followed by the Board’s approval for the ninth review.”

The Ministry of Finance in general and the Minister of Finance in particular have been consistently overly optimistic about the SLA being imminent since the departure of the Fund’s 9th review mission on 10 February 2023, in spite of the fact that the Mission’s press release at the time stated explicitly that “this mission will not result in a Board discussion.”

More than two months later the 9th review remains pending though no one reckons that the SLA will not be reached for two reasons: (i) all politically challenging prior conditions including a mini-budget, upgrading utility rates and petroleum levy have been met; and (ii) the pledges from the three friendly countries – China, Saudi Arabia and the UAE – have been met/restated though the formal intimation to the Fund by the UAE is still awaited.

However, Azour did not deem it appropriate to upload a press release on the Fund’s website confirming that a meeting was held with Dar virtually and, more importantly from the perspective of our markets, that he was confident that the SLA would be signed soon – a lapse that has fuelled speculation that the prior actions agreed during the Fund mission (1 to 9 February 2023) may require additional measures as the economic slide has exacerbated since then – in terms of growth forecast that would upset revenue projections, the increased reliance on domestic borrowing to fund current expenditure that is increasing inflation and last but not least the continuation of forex remittance restrictions even though there has been considerable exchange rate flexibility when compared to earlier (before 27 January 2023) when the rupee’s external value was controlled.

And while the government’s claim that it has satisfied the Fund team on its decision to provide cross-subsidy on petroleum products, whose mechanism is still awaited, yet questions will remain till the SLA is reached.

The prior actions were all inflationary and if one adds the fact that the government’s current consumption has risen dramatically in recent months, with the policy rate at a high of 21 percent and still not reflecting a positive rate of return given the consumer price index of a little over 27 percent in March, ever-rising farm to market transport costs due to the petroleum levy and last but certainly not least the devastation wrought on our agricultural sector due to the floods last summer one can conclude that the reasons for inflation are not entirely attributable to the Fund programme.

In this context, the World Bank’s revelation that food inflation has been on the rise in Pakistan for 11 consecutive months and is a close second at 47.2 percent to Sri Lanka’s 47.6 percent, is disturbing as one is forced to acknowledge that the major point of departure between the two countries is that while the 9th review remains pending for Pakistan the Fund’s programme is signed and running in Sri Lanka.

In September last year, inflation in Sri Lanka was as high as 70 percent and while negotiations on the Fund programme for 2.9 billion dollar Extended Fund Facility came to fruition on 20 March 2023 yet prior conditions were met earlier accounting for a steady decline in inflation.

It is important to note that the Sri Lankan programme bears remarkable similarities to the ongoing programme in Pakistan approved in 2019 as it required assurances from bilateral creditors - a press briefing by three major Sri Lankan bilateral debtors is scheduled during the ongoing Spring World Bank/IMF - that they will provide debt relief to restore debt sustainability as well as “a multi-pronged strategy to restore price stability and rebuild reserves under greater exchange rate flexibility in order to alleviate the burden of inflation.”

Some independent economists argue that without the Fund programme Pakistan’s inflation would be higher by at least 10 to 15 percentage points, however, the focus of the Fund is on factors that may be critical in economic theory in developed economies but not as critical in Pakistan as regards their contribution to inflation in general and to provide relief to the poor in particular.

First off, manipulation of the policy rate to check inflation merely stifles private sector activity with a consequent negative impact on growth and employment levels while each successive government has borrowed heavily to spend on current expenditure, which not only fuels inflation but also the budget deficit with ever-rising debt service payments.

What this country needs is to massively slash current expenditure but instead the Fund’s focus is on raising revenues with the government relying on low-hanging fruit or indirect taxes (currently accounting for over 71 percent of all collections) whose incidence is greater on the poor than on the rich.

To increase the Benazir Income Support Programme (BISP) by around 40 billion rupees as part of the negotiations with the Fund is money that is too little given the rising number of jobless and the rising prices of food.

The Fund, therefore, needs to develop country-specific programmes or detailed rules specific to a country or group of countries.

Copyright Business Recorder, 2023


1000 characters
Muhammad Ali Apr 14, 2023 09:19am
Bureaucracy & rotten lot of fake politicians have ruined this nation. There is no light at the end of tunnel as nobody is ready to correct the mistakes.
thumb_up Recommended (0) reply Reply
Tulukan Mairandi Apr 14, 2023 12:00pm
IMF bailout is all but dead. Just bite the dust, declare default and balkanize. Simple.
thumb_up Recommended (0) reply Reply
KU Apr 14, 2023 02:12pm
In many words, the IMF has observed that the government's approval of over Rs. 90 billion for various schemes is unrealistic in the current economic crisis and that loans are also not forthcoming because of the political uncertainty in the country.
thumb_up Recommended (0) reply Reply
Waqar Apr 15, 2023 07:21am
@Tulukan Mairandi, Your obsession with Pakistan is deep.
thumb_up Recommended (0) reply Reply
Nadeem Apr 16, 2023 05:18pm
Tulukan Mairandi you are a sickman, last 3 month se default ka shour kr rhe ho or betukey argument. Grow up man, leave the conspiracy theories
thumb_up Recommended (0) reply Reply
Abdullah Qazi Apr 20, 2023 06:34am
@Tulukan Mairandi, who the heck are you Bhai har post pay default Ka Rona Kyu rothay ho apnay Ghar mai pahlay shaunchalay tou bana lo Aur income inequality Aur poverty which is the same as Pakistan khatam karkay Phir baath karna 1 billion ki population pay 700 billion USD export karkay Kyu chauray horahay ho Bhai china say seekho Aur superpower bannay Kay khwaab chorr do Bhai. Bloody Indians stop this nonsense propaganda. Apnay Ghar ka khayal karo.
thumb_up Recommended (0) reply Reply

IMF bailout in sight: misplaced optimism?

As budget announcement nears, here are some proposals that could affect you

How experts view the upcoming budget announcement

Federal cabinet meeting approves Budget 2023-24

Cyclone Biparjoy: Climate minister says conditions supporting system may intensify

Migrants in UAE, including Pakistanis, turn to crypto to send remittances home

Ali Muhammad Khan re-arrested in Mardan shortly after being discharged from vandalism case

Kremlin says US can’t tell Saudi Arabia what to do on oil policy

Britain sets price floor on oil and gas windfall tax

Trump faces federal charges in classified documents case, adding to legal woes

Chinese investors flock to Riyadh conference seeking new markets, capital