EDITORIAL: As per reports, the Update and Outlook August 2022, compiled by the finance division, Pakistan’s economic outlook is surrounded by global and domestic uncertainties.
The former is the outcome of unabated geopolitical tensions (read Russia-Ukraine ongoing war and its severe implications on global geopolitics, particularly on low income economies like Pakistan with Large Scale Manufacturing growth particularly exposed to the ongoing vagaries of the international market) and expectation of the US rate rise that in recent weeks reversed the rupee strengthening evident soon after the International Monetary Fund (IMF) set the Board date for approval of the disbursement of 1.17 billion dollars; while domestic uncertainties, apart from the ongoing political impasse, have become evident in the revised downward projection of farm output, hostage to the devastating floods, which are affecting large parts of the country that grow cash and food crops, with severe implications on projected farm growth for the year as well as those manufacturing sectors that use farm output as an input.
There is no doubt that the impact of the floods, though yet to be fully quantified as at present the focus is on rescue and relief operations that would eventually be followed by rehabilitation, has been significant with some estimating that it had already outpaced the loss associated with the pandemic. It may be recalled that during the pandemic, the IMF was at the forefront of providing relief to all member countries, including Pakistan, and released 1.6 billion dollars in timely emergency assistance but, perhaps, what was even more of a concession to the people of this country was the Fund’s decision to back off from insisting that Pakistan continues with the severely contractionary monetary and fiscal policies it had pledged under the 6 billion dollar Extended Fund Facility (EFF) programme effective 1 July 2019. This implied the policy rate set by the Monetary Policy Committee chaired by the Governor State Bank of Pakistan could be reduced from 13.75 percent to 7 percent, the real effective exchange rate allowed to be more in tandem with the market, and fiscal policy eased to facilitate output.
However, as and when the sixth review in the early part of 2021 began the IMF was clearly no longer amenable to phasing out or deferring the conditions agreed under the EFF — a fact that took a little more than nine months for the then newly-appointed finance minister Shaukat Tarin to accept and it took Miftah Ismail, the incumbent finance minister, three months to accept as indicated by implementation of politically challenging prior conditions, in instalments, before the Board date was set.
Today, the country desperately needs help from friendly countries, and pledges have been forthcoming, but what is also required is relief in the form of a deferral of some of the very harsh conditions that the public is even more unable to withstand subsequent to the floods.
In this milieu, the Khyber Pakhtunkhwa (KPK) government reportedly first unsuccessfully sought a meeting with Ismail and later sent a letter stating that: (i) with the ongoing relief effort to be followed by rehabilitation, requiring an estimated 100 billion rupees, the provincial government may no longer be in a position to generate the surplus agreed under the Memorandum of Understanding that was signed, as a Fund condition, though the budget presented by the KPK government was a balanced one; (ii) the long standing arrears due to the KPK by the federal government (hydel) as well as the budget for unsettled areas after the merger that necessitates discussions on the next National Finance Commission award due since 2015, dates back to decades including the three years and eight months of the PTI administration in Islamabad — money that the federal government simply does not have at the present moment in time. In this context, one would however hope that the federal government establishes an NFC (National Finance Commission) and begins discussions; and (iii) allocating funds for the Sehat Card for 5 million tribal residents — a pledge made by the Khan administration and unlikely to be supported by the incumbent government.
However, as these lines are being written, audio tapes have surfaced of telephone conversations between the former federal finance minister Shaukat Tarin, with the KPK finance minister Jhagra and Punjab finance minister Leghari, from which it appears that Tarin was communicating a decision of the PTI to write such letters to the IMF. The veracity of the content of these tapes has been confirmed by Shirin Mazari, a senior PTI leader.
The timing of publicly releasing the contents of the letter upset the federal government with Finance Minister Ismail accusing the KPK government of attempting to sabotage the IMF Board approval for the next tranche scheduled for Monday (yesterday). The KPK government rebutted the accusation, adding that Ismail failed to meet with his provincial counterpart when requested, and, due to lack of any information to the contrary, also failing to bring the aftermath of the devastating floods to the notice of the Fund mission and management with a view to revisiting some of the upfront harsh conditions.
Considering that financing by friendly countries and other multilaterals are all tied to approval of the IMF board and release of USD 1.17 billion tranche by the Fund, the KPK finance minister ought to have delayed writing this letter by less than a week till after the IMF board’s meeting yesterday. That would have forestalled accusations of undermining the Fund’s approval and exhibited putting the country’s interest before other considerations.
Furthermore, given the devastating floods and the plight of the people it is imperative for the federal and provincial governments to work together to resolve the issues facing the people affected by floods instead of playing politics.
Copyright Business Recorder, 2022
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