EDITORIAL: As Pakistan’s economic team leaders claim that stabilisation of the economy has been achieved citing a range of positive trends, including a reduction in the negativity of the large scale manufacturing sector and a current account surplus on the back of import restrictions, the general public, international rating agencies as well as multilateral lenders appear to be singularly unimpressed.
The government’s claim is being challenged by data on multiple counts: in January 2024 a deficit resurfaced in the current account with 269 million dollars due partly to a widening of the trade deficit - exports fell and imports rose as restrictions were lifted as per agreement with the International Monetary Fund (IMF); a decline in the negativity of the productive sectors is partly due to a rise in farm output and partly due to fiscal and monetary incentives meted out to what is being defined as high frequency indicators – fertilizers, tractors and cement.
The public’s concerns are centered on weekly adjustments in their kitchen budget as ever larger percentage of income is being allocated for food (given the Sensitive Price Index of 34.25 percent year-on-year for the week ending 15 February 2024), a poverty level as high as 40 percent, and eroding job opportunities as factory closures due to ever rising input costs that the government attributes to administrative measures agreed under the ongoing International Monetary Fund (IMF) programme without taking responsibility for the massive rise in government’s domestic borrowing to fund current expenditure - reaching levels in the first six months this year that were achieved for the whole of last year –- a highly inflationary policy.
The IMF’s ongoing programme is based on a two-pronged strategy: to achieve full cost recovery that has translated into ever higher utility prices, a policy that shows lack of empathy for the lower to middle income levels nudging them ever closer to the category of the poor, while structural adjustments identified and stipulated as conditions for the Fund programme have yet to be implemented — adjustments that are considered to be politically challenging but with capacity to improve governance in sectors, particularly the poorly performing energy and tax sectors that would pre-empt the need to raise utility charges or petroleum levy.
Much was made recently of the Federal Board of Revenue (FBR) reforms that focused on administrative changes rather than any serious attempt to change the tax structure by raising the contribution of direct taxes based on the ability to pay principle (and not imposed as withholding taxes in the sales tax mode as is the case at present) to at least 40 percent by year end.
Multilaterals and bilaterals are equally wary of administration after administration altering the preferred influential group favoured in the budget — PPP (Pakistan People’s Party)-led government favoured rental power project contracts that a third party audit conducted by the Asian Development Bank opposed, the PML-N (Pakistan Muslim League-Nawaz) supported contracts in the power sector that account for the ongoing high price of electricity, while the Khan administration favoured builders and construction sector.
Rating agencies focused on Pakistan’s creditworthiness are factoring in continued political uncertainty in the aftermath of the 8 February elections, justifiable as Pakistan’s sovereign dollar bonds fell by as much as 1.25 cents since the elections though April 2024 bonds fell the most – trading at 95.88 cents to the dollar – no doubt due to the scheduled end of the IMF programme on 12 April though Fitch in its report reckons that the next programme loan, considered critical to deferring the still looming threat of default, will be achieved within a few months but with much harsher conditions. To restate the current scenario: no rating agency has upgraded Pakistan since a staff-level agreement was reached on the twenty-fourth ongoing loan programme on 29 June 2023 and neither was there any upgrade after the first review was completed on 15 November 2023, a first in our long history of securing IMF loans.
Pakistan’s economy has entered a phase where no multilateral or bilateral is willing to project an improvement without the government first delivering on its pledges and no rating agency is willing to give an upgrade without assessing on ground situation first.
The luxury of delivering only on those pledges that pass on the buck on to the hapless consumers, a reflection of the complete lack of empathy with the people of this country by our administrations, and not improve governance through reforms is no longer available and one would hope that this is realised by the new government as it engages in the second and final review and enters into negotiations for the next programme.
Copyright Business Recorder, 2024