Next IMF programme is not going to be easy

The IMF review is ongoing, and it’s likely to sail through, as all the quantitative targets have been met. The potential issue could be the transition to the next programme and having election before that which is an inherent condition.

To counter that, elections dates have been announced. The questions are over the next IMF (international monetary fund) programme, and whether securing it is going to be a walk in the park.

The current SBA (Stand-By Arrangement) was a surprise move, and not many (including the IMF’s staff members or this author) had seen it coming.

However, it did happen, and the premise of the nine-month SBA was to assist transition into the next and bigger IMF programme, which cannot be negotiated with the caretakers. Thus, perhaps on anticipation (or assurance) of having election before March 2024, the SBA was signed.

The first quarter under the caretakers went well. There is some fiscal consolidation at the federal level (in the short run). The primary fiscal balance target has been comfortably met, and revenue collection is up to the mark. The targets for SBP have been met as well.

The gas prices increase is being approved by the cabinet; however, the notification by Ogra is still awaited. The currency gap between the interbank and open market is within SBP’s limit of 1.25 percent – though IMF has issues with pending payments and the semi-controlled imports in the interbank market. There are some concerns here and there, but nothing should be a deal breaker.

The questions are over the near future. The foremost is of elections. The implicit communication by the IMF is that this SBA was signed as a bridge facility to have the next programme negotiation between the Fund and to the next elected government, and if there are no elections, there is no point of continuing this programme. Hence, the elections have been announced, and the ball is now rolling.

The second question is about the continuation of the so far up-to-the-mark fiscal performance – FBR (federal board of revenue) is especially under the focus. There are some concerns about meeting the full year target of Rs9.4 trillion. The performance is fine so far, but there might be some challenges going forward. The price effect was to help meet the FBR target. With lowering inflation and slowing imports, the continuation of FBR growth is going to be challenging.

Then the committed surpluses from the provinces are absent – especially from Punjab. The caretakers have come up with lavish budgets for the next four months which, as per some legal experts, are unconstitutional – however, many also hold the extended continuation of the caretaker government in the provinces as unconstitutional ab initio.

The issue is the development and relief focus of the Punjab government which may result in the provincial government not yielding budgeted surpluses, and that may not bode well for the targets of second and third quarter.

Then the Fund is not comfortable with sovereign wealth fund and overall SIFC (special investment facilitation council) framework, which is not aligned with the IMF’s framework of SOEs (state-owned enterprises) and financial reforms. These might have bearings on the next programme, which is most likely to follow (almost inevitable).

However, the issue is that some policy makers from the twin cities having influence on ultimate decision makers think that the chronic economic issues in Pakistan are due to the IMF, and they blame all the worst outcomes on the IMF while keeping a blind eye to the blunders in the domestic policymaking and lack of will on instilling the much-needed taxation, energy and expenditure reforms.

The next programme is not going to be easy. There are big funding gaps in the medium term. The 9-month breather Pakistan received does not ensure medium-term stability. Things are fine for the next few months and general elections may also be held. However, if elections are not going to be free and fair, political stability may not be given beyond elections, and that could have an impact on the next IMF programme.

Copyright Business Recorder, 2023