EDITORIAL: The Pakistan Tehreek-e-Insaf (PTI) administration meticulously adhered to the politically challenging prior conditions for the sixth review till end January 2022, prompting the International Monetary Fund (IMF) Executive Board to complete the review under the Extended Fund Facility (EFF) thereby allowing Pakistan to draw 750 million Special Drawing Rights, (one billion US dollars), on 2 February this year.
The challenging conditions included the passage from the National Assembly of two bills: (i) Finance Supplementary Bill 2021 which envisaged withdrawal of 350 billion rupee exemptions that the government contended was designed not to raise revenue as 280 billion rupees would be refunded (a pledge that remains unmet to this day perhaps due to procedural delays), but to end distortions and widen the tax net; and (ii) State Bank of Pakistan (amendment) Act that strengthened its autonomy.
Needless to add, despite the Opposition’s rhetorical resistance to these two bills they were passed by the assembly and the Senate as there was a consensus within various state institutions and independent economists that the IMF tranche was critical to meeting the high target set for reliance on external resources.
The government compliance with its pledges made to the Fund underwent a sea change later in February reflected by the Prime Minister’s announcement of the relief package on 28 February, envisaging a 10 rupee reduction in the prices of petroleum and products, a 5 rupee per unit reduction in electricity tariffs — rates to be applicable till 30 June 2022. It is difficult to quantify this package mainly because the prices of petroleum and products are dependent on the duration of the Russia-Ukraine war and whether the Western sanctions on Russian oil exports would continue beyond a ceasefire.
In addition, the Prime Minister announced an increase of 2,000 rupees per Benazir Income Support Programme beneficiary projected at around 11.5 billion rupees. The next day the Prime Minister announced an industrial package best defined as an amnesty scheme coupled with exemptions — decisions that violate the agreement with the Fund.
The government’s explanation as to the source of the additional funds required to fund these packages has reportedly not satisfied the Fund and while engagement between the authorities and Fund staff continue yet there is a stalemate for the obvious reason that neither the Prime Minister nor his cabinet is willing to withdraw the two packages given the ongoing political impasse.
Those who may be tempted to criticise the Prime Minister for subordinating economic considerations to political compulsions must recall that such a situation is not unique to his administration and has been apparent time and again in the past as well, especially, when an election was looming large on the horizon. The Musharraf-led government extended massive subsidies to contain the prices of petroleum and products at a time when international oil price rose to over 140 dollars to the barrel — a decision that fuelled an unsustainable deficit which, in turn, prompted the newly-elected government of Asif Zardari to go on a Fund programme.
The Zardari government refused to implement the agreed challenging Fund conditions (power and tax reforms in particular) and by the third quarter of 2010 the Fund programme was suspended. Economic principles were abandoned by 2012 as elections were scheduled in early 2013, which accounted for going back on the Fund programme three months or so after the PML-N government came to power.
True, that the 2013-18 PML-N administration completed the Fund programme but the then Finance Minister Ishaq Dar’s training as an accountant led him to focus on balancing the budget — a feat he achieved with questionable economic policy decisions, including artificially keeping the rupee overvalued. However, by the end of 2017 with elections looming large, the PML-N government began, like its predecessors, to inject money into the economy by extending development funds to parliamentarians with the objective of winning elections.
The PTI administration must learn from past history: none of the administrations that opened the floodgates of high subsidies to win elections were successful while the damage done to the economy was incalculable because each time the incoming government was forced to go on a Fund programme that was ever more stringent and harsh on the general public.
Copyright Business Recorder, 2022
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