EDITORIAL: The sixth review report uploaded on the International Monetary Fund (IMF) website on Saturday has uncharacteristically been extremely critical of not only nearly all components of the Prime Minister’s signature Ehsaas programme but also of meeting the oft-repeated overarching objective of Finance Minister Shaukat Tarin — notably a growth rate of between 5.5 to 6 percent — on the back of expansionary macroeconomic policies as being responsible for “reversal of some earlier reforms”.
Claims of ‘ten billion tree tsunami’ as a significant mitigating measure to deal with climate change by the PTI administration was overshadowed in the report by acknowledging that while Pakistan is a small per capita emitter of greenhouse gases worldwide but in absolute terms it ranks amongst the top 20 in the world and further contending that notwithstanding the major increase in Benazir Income Support Programme (BISP) the country failed to meet its Sustainable Development Goals.
The Prime Minister and Finance Minister’s support for free/cheap credit for housing, construction, 1.63 trillion rupees Kamyaab Jawan programme, ration card envisaged to subsidise three staple food items by 50 percent was also not supported by the Fund which suggested “unwinding these measures out of concern for financial stability” — a concern that may well extend to Sehat Sahulat Card which may have prompted the Fund to urge the government to reprioritize and improve spending efficiency with the need to recalibrate investment spending in line with realistic execution rates.
The report made short shrift of the government’s claims that it would mobilise higher revenue through launching innovative schemes and allow third-party audit to those non-filers who challenge the notices sent to them by stating that the government expects an “unrealistically strong tax revenue growth (from marked improvements in tax administration and strong domestic demand, notably imports) thus introducing significant risks of fiscal slippages.”
This no doubt accounts for the prior sixth review condition of the passage of withdrawal of 343 billion rupee exemptions by parliament (achieved by end 2021 calendar year) and the distinct possibility of the passage of possibly yet another finance bill in March as preparations are reportedly under way in the Federal Board of Revenue.
The review report supports the staff-level agreement reached in March 2021 on the combined second to the fifth review reached with Tarin’s predecessor who was summarily dismissed by the Prime Minister on 29 March 2021 — an agreement that Tarin claimed he rejects and would renegotiate. In spite of expansionary policies by the State Bank of Pakistan (SBP) in support of meeting the Prime Minister’s/Finance Minister’s growth targets, the IMF expressed support for the rupee erosion in spite of the real effective exchange rate determined by the SBP of 96.7 in December (lower than 98.5 in November 2021) and advised greater exchange rate flexibility to address Balance of Payment (BoP) pressure. The Fund also supported the recent rate rises as appropriate.
And to phase out the refinance facilities, an expansionary policy, the Ministry of Finance and SBP agreed to jointly design and put in place an appropriate development finance institution by end April 2022 (a new structural benchmark) as a basis for a plan to transfer refinance schemes to the government.
There are two obvious observations with respect to the report. First, multilaterals do not upload any programme lending document on their website without first allowing the debtor government to review it.
The question is who if anyone bothered to read the not so fine print of the report and why were not some suggestions made to tone it down? As it stands today it’s a damning indictment of the Prime Minister’s Ehsaas programme as well as finance minister’s ability to achieve his growth target as clearly the thrust of the Fund is to revert to contractionary policies, as a prelude to achieve reforms that were stalled after the change in the finance ministry till such a time that the new leadership in Q block (a euphemism for the ministry of finance) was constrained to back down on almost all counts.
And secondly, the Fund has shown a singular lack of understanding of Pakistan’s internal dynamics and the incumbent administration’s limitations/compulsions — a fact reflected by its insistence on the passage of the finance supplementary bill and SBP amendment bill through parliament which instead of generating a political consensus between political parties on the need for reforms has further polarized government stalwarts from coalition partners and members of the opposition; and also diluted support from within the ruling party.
Copyright Business Recorder, 2022
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