Revisions by the IMF

The International Monetary Fund (IMF) has made two revisions in the ongoing 6 billion dollar Extended Fund Facility programme, according to the Mission Chief Ernesto Ramirez Riga: (i) inflation is slightly lower than the projected 13 percent because 'some of the pass through from the exchange rate adjustments has been more moderate than anticipated'; and (ii) some adjustments have been made to the export import composition of the current account but without any major substantial change in the total current account deficit share of GDP expected this year.

Inflation may not be as high as projected; however, this statement ignores the fact that food inflation is close to 20 percent - the main expenditure item for the poor and the vulnerable including the beneficiaries of Prime Minister Imran Khan's signature 'Ehsaas' programme. Additionally, the contractionary policies supported by the State Bank of Pakistan and the Ministry of Finance (fiscal policy) have reduced output with job losses estimated at over 50,000 for the first six months into the programme, leading to a rising number of unemployed being pushed into the ranks of the poor. This situation is untenable in the medium term and one would hope that the Pakistan-IMF negotiators take cognizance of a situation that could possibly have serious socio-economic implications in months to come and thereby compromise the scheduled and critical structural adjustments that Pakistani administration after administration agreed to with multilaterals but abandoned due to political considerations.

Riga noted that the government insisted that expenditure must not be slashed as the Khan-led administration's priority is social and physical sector development. The budgeted current expenditure is higher by 30 percent in comparison to the year before inclusive of social sector development allocation budgeted at 200 billion rupees with Benazir Income Support Programme parked here unlike in previous years; in total terms the current expenditure rise is estimated at 1.5 trillion rupees. Public Sector Development Programme (PSDP) is budgeted to rise by 40 percent though in actual terms the rise amounts to 200 billion rupees. Be that as it may, during the first three months the federal and provincial consolidated budgetary operations revealed that less than one percent of the budgeted amount was released for social sector and 8.8 percent for PSDP. Unless this rate of disbursement for an amount already budgeted (and approved by the IMF) is improved in months to come, this argument, notably the reason why expenditure was approved to rise substantially during the ongoing year, would not be relevant. The issue as repeatedly argued by Business Recorder is not one of the programme design being flawed but one of an over-correction by the Pakistani authorities with the Fund's overt if not tacit agreement.

The adjustment in import export composition is almost 95 percent on the import side as its compression, due to over-correction in terms of an undervalued rupee and an untenably high discount rate, untenable from the perspective of domestic productive sectors, accounts for a decline of nearly 75 percent. Exports unfortunately have risen only marginally and while percentage data reflects a major improvement yet in actual terms the rise has been around 200 million dollars. However, disturbingly Riga pointed out that there has been no substantial change in total current account deficit as a percentage of the GDP. The two chief negotiators from Pakistan's side - notably Governor SBP and the Advisor to the Prime Minister on Finance - are silent on this point.

So what exactly does current account to GDP measure? It is defined as balance of trade (goods and services exports minus imports) - the overwhelming focus of Imran Khan's economic team leaders cited as a measure of their success in improving the economy and therefore of the Prime Minister himself. However, current account to GDP also includes net income from abroad and net current transfers (including borrowing (from multilaterals/bilaterals and in our case from commercial banking sector abroad at high rate of return with a small amortization period). For 2019, IMF mapped Pakistan's current account to GDP at negative 4.6 percent (comparable figure for India and Bangladesh was negative 2). This as per Riga has disturbingly has not substantially changed and one would hope that the Prime Minister is made aware of this rather than simply parroting the success in containment of the trade deficit.