As they make their way back from Garhi Khuda Bakhsh, high level policymakers are probably breathing a sigh of relief. Some prayers were definitely answered at BBs death anniversary as the governments finance team was able to extract an extension on commitments to the IMF.
On December 27, the Funds executive board of directors allowed a nine-month extension on the Stand-By Arrangement, first signed in November 2008 and later enhanced in August 2009 to $10.6 billion.
The comprehensive economic stabilisation programme required belt-tightening in the name of reforms on the part of the government; but foot dragging in major reforms has led to the drying up of inflows.
The last tranche was received in May 2010, when the IMF suspended the programme and withheld the remaining $3.6 billion.
The extension is being portrayed in some sections of the media as a three-quarter breather on reforms. "I am surprised the extension was granted, Pakistan cannot afford the luxury of delaying reforms for another nine months," said an industry expert who until recently, was part of the governments finance team.
RGST has been the most contentious issue since the SBA was launched. After missing the deadlines time and again, it seems "this extension will be the final blow to this reform initiative in taxation" the expert went on to say.
Domestic resource mobilisation is essential for the government to provide basic services to its citizenry and repay its international debt obligations.
Removal of subsidies in the power sector is a difficult decision from a political standpoint. Yet, without complete price rationalisation of the power sector, the subsidy has swelled up to nearly Rs300 billion.
Despite the many tall claims of energy self-sufficiency by the Ministry of Water and Power, industry experts agree that little progress has been made in the withdrawal of subsidies.
Last, but not nearly the least, is the issue of fiscal discipline. Even the central bank has joined the ranks of those demanding austerity. Yet the government doesn seem to pay any heed to strong worded monetary policy statements.
Government borrowing from the central bank reached Rs302 billion as at December 14, despite its agreement with the IMF to reach zero quarterly (net) borrowing from the central bank, a measure intended to curb inflationary pressures. Legislative decisions that would restrict government borrowing from the SBP haven still been passed.
Overruns in the budget deficit are another concern. In the aftermath of the devastating floods, the target was revised to 4.7 percent of the GDP, up from 4.6 percent set out in the budget.
As it stands now, the SBP estimates the budget deficit to be 6.3 percent while the analyst community has even grimmer expectations.
"The next few months will be very difficult for the country and tough decisions will have to be made," Dr Salman Shah, former finance minister told BR Research. The government is not left with much except getting its act together on the economic policy front.
Let it be clear once again, that foreign flows, not just from the IMF but also from the World Bank and ADB will remain suspended unless measurable progress is made on the ground.