“Notwithstanding the encouraging start of the program, risks to the outlook remain high”. The point 9 of the detailed report sums it up. The monetary and exchange rate management are on the right path. Full marks to the SBP! On tax revenues, the domestic sales tax growth is impressive. It’ a job well done by FBR. The long-awaited structural reforms are painfully slow. Finance and Energy ministers need to do more.

“Fiscal slippages and, more generally, resistance to reform from vested interest groups could undermine the program's fiscal consolidation strategy and put debt sustainability at risk”. That is the story of Pakistan which keeps on taking the country back to the IMF. The balance-of-payment-constrained growth estimate of 3.8 percent by ADB is attributed to these factors.

The fund has highlighted the fact that the absence of a majority by the ruling party in the upper house may hinder the adaptation of legislation needed to achieve programme objectives. The point is that some reforms are beyond the PTI government’s will (and that is debatable, too). They simply cannot do legislation without taking opposition parties on board. The other factor is higher reliance of federal government on provinces to fulfill their fiscal commitments. The Fund seems to doubt it will happen.

The Fund has raised apprehensions that lukewarm performance on structural reforms may result in stagnant economic activities and less-tangible benefit to the masses. This can intensify the pressure to backtrack on policy commitments. Just to remind, the cabinet members belonging to the core of PTI took about a year or so on deliberating whether to seek the Fund programme or not. A backlash within PTI camps may resurface at some point against the Fund’s tightening policies.

“Failure to meet program objectives could jeopardize the availability of external financing,” the Fund warned. This could jeopardize the whole reform process. It is of utmost importance to rely on foreign financing and investment to buy time for results of structural reforms to reap benefits in terms of domestic economic competitiveness. The other thorny issue is of FATF compliance.

The punch-line is that the start of the programme is good. But the tough part is to resolve the mess in the energy sector and other key sectors. And for that to happen, reforms have to go beyond monetary, exchange rate management and documentation. The next 12 months are fine as the programme remains fully funded. The Fund has lowered the inflation forecast to 11.8 percent from the earlier 13 percent estimate. The market, however, expects inflation to remain at 10.5-11 percent.

The biggest concern is on reduction of energy-sector circular debt. The solution is to timely increase the tariff by making Nepra recommendations binding. The issue is that with higher tariffs, the demand on grid is to reduce. But the Fund wants the circular debt reduction through tariff hike and budgeted subsidies. That may work out alright in isolation, but the bigger problem cannot be solved without revisiting the IPP-based projects and the long-term RLNG contracts.