EDITORIAL: International Monetary Fund’s (IMF’s) Board calendar till 14 December surprisingly does not include approval of Pakistan’s 3 billion nine-month-long Stand-By Arrangement’s (SBA’s) first tranche release as an agenda item, even though the prerequisite, reaching a staff-level agreement (SLA), dated back to 15 November as per its website.
Assuming that this is not an oversight on the part of the Fund or that the delay is not due to the failure of the Mission to prepare a detailed document required to be presented to the Board for approval, this omission necessitates the two Pakistani signatories to the SLA, the caretaker minister of finance and the Governor State Bank of Pakistan, to provide an explanation forthwith so that speculation, the bane of all investment – local and foreign – would die down and signs of a nascent economic recovery do not abate.
This time around, however, it is not only the investors who may be concerned but also the general public including low to middle income householders grappling with a consumer price index of 29.2 percent in November, fearing that the delay may be due to prior conditions not having been met yet – prior conditions comprising of administrative measures associated with higher utility charges and/or higher indirect taxes whose incidence is greater on the poor relative to the rich.
Given that multilaterals all but shut down for the Christmas holidays by mid-December and resume full working mid-January, a delay should be a serious source of concern for all stakeholders for two reasons. One is that the foreign exchange reserves in the country remain alarmingly low, at 7,257 million dollars, as of 24 November – largely borrowed funds that are barely enough to meet two months of imports.
While this amount is healthier than the 23 June figure of 4,069.9 million dollars, which compelled the then Shehbaz Sharif-led government to seek the SBA with a SLA reached on 29 June, but only, after prior conditions were met that required abandonment of two major disastrous policies of the then Finance Minister Ishaq Dar.
First, reverting to a market-based exchange rate and in this context it is relevant to note that the SLA dated 15 November restates the Fund’s position perhaps due to concerns that Dar may return as the next finance minister, more strengthened if Nawaz Sharif is elected as the country’s chief executive, as expected: “while inflows following increased regulatory and law enforcement helped normalise import and FX payments and rebuild reserves, the authorities recognise that the rupee must remain market-determined to sustainably alleviate external pressures and rebuild reserves.
To support this, they plan to strengthen the transparency and efficiency of the FX market and to refrain from administrative actions to influence the rupee. …With appropriately tight monetary policy, inflation should steadily decline and the authorities stand ready to respond resolutely if near-term price pressures reemerge, including due to second-round effects on core inflation or renewed exchange rate depreciation.”
And second, the Fund noted the need for “continued fiscal consolidation to reduce public debt while protecting development needs.
The authorities are determined to achieve a primary surplus of at least 0.4 percent of GDP in FY24, underpinned by federal and provincial government spending restraint and improved revenue performance supported, if necessary, by contingent measures. The authorities are building capacity to expand the tax base and raise revenue mobilisation and are committed to improving the quality of public investment and spending.”
Sadly, to-date there is no decrease in current expenditure with the November monthly Update released by the Finance Division claiming that this is not possible due to mark-up payments experiencing a substantial surge of 44.6 percent primarily attributable to a higher policy rate – a statement that is baffling as the discount rate has been unchanged since June this year leading to the obvious conclusion that the caretakers have increased domestic borrowing by more than was budgeted.
It is, as has been the norm with elected governments, development expenditure that has been slashed to meet the budget deficit targets.
While we appreciated and continue to appreciate the timely reaching of the SLA on 15 November, we also expect that the current economic team leaders would clarify the possible reasons for the delay and thereby help ease public concerns as well as of those engaged in productive activity.
Copyright Business Recorder, 2023