EDITORIAL: The budgeted 6 billion dollars from the commercial banking sector abroad and through issuance of Sukuk/Eurobonds has clearly stalled due to no upgrade in Pakistan’s credit rating by international credit rating agencies, subsequent to the staff-level agreement (SLA) reached with the International Monetary Fund (IMF) on the Stand-By Arrangement (SBA) on 29 June 2023.
Pakistan since 2019 has had to adjust to extremely harsh upfront conditions, refusal by multilaterals to phase-out programme conditions and ensuring disbursement of pledged assistance from bilaterals made contingent for programme/quarterly review approval and, most recently, refusal of the three international rating agencies - Fitch, Standard and Poor’s and Moody’s - to improve the country’s credit rating subsequent to the SBA.
The reason: previous Pakistani administrations have been quick to sign off on an IMF loan, Pakistan is currently on its 24th Fund programme, but has opted time and again to either end it before the scheduled completion so as not to implement politically challenging structural reforms (SBA dated 2008) or reverses/violates the agreement (Extended Fund Facility dated 2013 and then again in 2023).
There is therefore no longer any leverage allowed to Pakistan authorities by multilaterals in terms of deferring or phasing out structural adjustments, which is negatively impacting on the country’s capacity to borrow from the financial market abroad.
In response to a query, the caretaker finance minister, in a press briefing on 16 November, the day after the departure of the IMF team after declaring the first SBA review a success, acknowledged that the country was in no position to go to the international financial market due to high borrowing costs.
She added, however, that multilateral and bilateral donors will meet the shortfall and the government will reduce expenditure. Reports indicate that the China has indicated its intent to additionally lend a billion to a billion and a half and while there is a general level of optimism that more lending would materialise in the near future.
At this stage, however, no other sources have reportedly announced additional lending. The caretaker finance minister indicated that the government intends to tighten its belt considerably, however to-date, the Public Sector Development Programme (PSDP) has been severely slashed, as has been the norm in the past, but the total budgeted federal PSDP for the year is 950 billion rupees (approximately 3.3 billion dollars at today’s rupee-dollar parity) and hence there is a shortfall of between 2 and 2.5 billion dollars that would need to be filled or current expenditure reduced by that amount.
Sadly, to this day, there has been no indication that the caretakers are focused on reducing current expenditure though fiscal consolidation efforts are ongoing on two counts: (i) levy of 40 percent tax on windfall income, profits, and gains retroactively on calendar year 2021 and 2022; and (ii) identification of one million taxpayers who would face utility cutoffs, allowed under powers granted in the Finance Bill 2023, if they do not file their returns.
It is unclear whether the courts would grant them stay orders at this stage if these measures are challenged. Business Recorder would however hope that the inordinate emphasis on indirect taxes as a means to generate the bulk of the budgeted revenue are replaced by direct taxes based on the ability to pay principle rather than on ease of collection – a trend that accounts for rising poverty levels in this country estimated at 40 percent in a recent World Bank report.
While one may be tempted to conclude that the ambitious plan to attract foreign investment, spearheaded by the newly established civilian-military partnership under the Special Investment Facilitation Council, will ensure that the shortfall is easily met, yet the Fund in its 15 November 2023 press release referred to this council under the section titled “continuing state-owned enterprise and governance reforms to improve the business environment, investment and job creation” rather than under “deepening cooperation with international partners” warning that high governance and transparency standards will apply to the management of funds…under the operations of SIFC.”
Copyright Business Recorder, 2023
Comments
Comments are closed.