EDITORIAL: Predictably, Pakistan Stock Market exhibited a sharp fall subsequent to the arrest of chairman of Pakistan Tehreek-e-Insaf (PTI) and former Prime Minister Imran Khan (IK), shedding 455.6 points.
This extremely disturbing situation arising out of IK’s arrest, further exacerbated the already dire straits that the economy has been unsuccessfully grappling with since the last International Monetary Fund (IMF) staff-level agreement was reached on 13 July 2022.
This agreement was reached after inordinate delay due to flawed policy decisions that violated the text and spirit of the agreement with the Fund, including control of the rupee rate without sufficient reserves to intervene in the market, extending 110 billion rupee electricity subsidies to exporters and more recently subsidies on wheat and other food items through a massive increase in expensive domestic borrowing.
With the ninth review pending to this day, Moody’s Investor Service coincidentally the same day as IK’s arrest warned that while Pakistan will meet its external payment obligations till the end of the fiscal year - 30 June 2023 - yet the country’s financing options beyond June are highly uncertain and without the IMF programme Pakistan could default in view of its very weak reserves.
It is again coincidental that the Ministry of Finance released a detailed treatise on identifying the quantum of debt to repay or roll over 3.7 billion dollars due till the end of the year – a statement that supports Moody’s claim that Pakistan will be able to meet its external repayment obligations till the end of the year.
However, the Ministry of Finance did not provide any details of the source(s) of the 3.7 billion dollar inflows till June, a little over a month and half away, required to meet the country’s debt obligations.
One can however project that a billion dollars and a half are envisaged from China and China’s commercial banks, some further support from Pakistan’s other friendly countries, Saudi Arabia and the UAE and perhaps Qatar, and the remainder from commercial borrowing that has been severely curtailed from what was budgeted in recent months because of the prohibitively high cost of borrowing due to the decline in the country’s credit rating to almost junk status.
In addition, the Ministry has consistently claimed that there are a significant amount of pledges in the pipeline (which includes commercial loans from Chinese banks as well as multilaterals) and has not focused on IMF insistence that these pledges must be in writing before the ninth review will be declared a success – a condition that the country has yet to meet.
However, there is general unanimity amongst domestic and international stakeholders, government and non-government, that 1 July, the first day of next fiscal year, would herald further deterioration of key macroeconomic indicators that include the growth rate, downgraded to 0.8 percent for the current year, on the back of a massive rise in government current expenditure (more than 75 percent rise compared to the year before) funded by domestic borrowing at a rate well above the 21 percent policy rate that has crowded out private sector borrowing and raised consumer price index to 36.4 percent in April with core inflation rising to 19.5 percent (a prelude to analysts projecting yet another discount rate raise by the State Bank of Pakistan) and a Wholesale Price Index of 34 percent which would further push retail prices to even more unaffordable levels.
In other words, the affected ones not only include the country’s major institutions, public and private sector, but also the general public.
A possible way out that sadly does not appear to be under consideration except rhetorically is to focus on demanding a massive sacrifice from the recipients of current expenditure and ushering in reforms that would reduce non-development outlay from the budgeted 8.6 trillion rupees in the current year to 6.6 trillion rupees next year.
This would require slashing non-operational military outlay drastically, keeping salaries of civilian and military unchanged next year, reducing civilian expenditure by at least a 50 to 100 billion rupees while implementation of identified reforms is urgently required in the pension system as well as merging all subsidies to ensure that only the vulnerable, read Benazir Income Support Programme beneficiaries, benefit.
In spite of these savings it is obvious that the country would still need to go on yet another Fund programme, assuming that by that time the ongoing programme has naturally concluded rather than remaining stalled.
This would require negotiations which ideally would be undertaken by representatives from all three national parties if elections are not held till that time and the ruling party and/or a coalition that may emerge if elections have been held.
This newspaper highlights the growing fragility of the economy and urges all stakeholders to focus on dealing with all economic issues on an emergent basis, including the growing mistrust between the current batch of economic team leaders and the IMF staff.
Copyright Business Recorder, 2023