EDITORIAL: As expected the board of the International Monetary Fund (IMF) approved the 1.17 billion dollar tranche release to Pakistan subsequent to meeting all “prior” Fund conditions that are extremely harsh for the general public. This approval was in spite of the release of the audio recording of the phone conversation between Shaukat Tarin and the finance ministers of Khyber Pakhtunkhwa (KPK, Taimoor Jhagra) and Punjab, (Mohsin Leghari) and the letter written to the federal government by the former (though not by the latter) and shared with the media as well as reportedly with the Fund staff.
The crux of the argument being presented by Tarin and Jhagra that the floods have disabled the provincial government from generating a surplus that it pledged through a signed memorandum of understanding with the federal government as a Fund prior condition is a defence that is unnecessary given that the IMF sets conditions — prior or subsequent to a tranche release — based on the prevailing macroeconomic indicators, which in the case of Pakistan have changed for the worse after the devastation wrought by the flash floods.
While inexplicably a package meant to shore up the country’s dwindling foreign exchange reserves, at present less than a month and a half of imports, and to strengthen the balance of payment position, which was signed off by both the previous government led by Imran Khan with Tarin as the finance minister as well as the incumbent government led by Shehbaz Sharif with Miftah Ismail as the finance minister continues to be subjected to politics and unnecessary point-scoring.
What is a damning indictment of the policies of the previous government in the Fund press release is the statement that “Pakistan’s economy has been buffeted by adverse external conditions, due to spillovers from the war in Ukraine, and domestic challenges, including from accommodative policies that resulted in uneven and unbalanced growth.” This in simplistic terms implies that policies favoured the elite, and one can cite the amnesty scheme for real estate developers, as well as monetary and fiscal incentives to large-scale manufacturing sector, contributing towards uneven and unbalanced growth. And, needless to add the around 6 percent growth rate achieved last year was on the back of higher domestic consumption after the pandemic, partly satisfied by inventories and only partly by a spurt in productivity.
And in a diplomatically couched indictment against the present government the Fund statement urges “containing current expenditure and mobilising tax revenues” that are critical for creating space for much-needed social protection and to strengthen public debt sustainability.” Inexplicably, the government budgeted an increase in expenditure by a trillion rupees this year with taxes, subsequent to amendments to the finance bill and an ordinance, projected to rise from 6.1 trillion rupees realised last year to 7.4 trillion rupees projected for this year — figures that are unlikely to be met as growth expectations would have to be considerably revised downward after the floods.
Disturbingly, what both the PTI and the PML-N stalwarts have completely ignored is the impact of the conditions agreed on the hapless people of this country.
While details of the agreement would be uploaded on the Fund website soon; however, it would be in order to presuppose that the utility prices and petroleum prices would rise (even if the international prices of oil and products decline because the budget has projected the realisation of 750 billion rupees as petroleum levy for the current year) — a contention supported by the Fund statement emphasising the need to adhere to the scheduled increases in fuel levies and energy tariffs.
Notwithstanding our own previous and current economic team leaders’ statements and counter statements what is baffling is the Fund statement dated 29 August, a good three weeks after the devastating impact of the floods has been brought home to several Western capitals through their media, where there is no mention of the floods whose scale of destruction makes a mockery of its statement that “the immediate priority is to continue the steadfast implementation of the recently approved budget for FY23, adherence to a market-determined exchange rate, and pursuit of a proactive and prudent monetary policy.”
In other words, the lender of last resort is clearly unsympathetic towards the plight of the people affected by flash floods and torrential rains.
Copyright Business Recorder, 2022
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