EDITORIAL: The market is unambiguously sending signals to the government to take appropriate measures to deal with the deepening economic fragility with the latest warning to undertake long-term and consistent policies to achieve high industrial growth coming from the Business Panel of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI).
What the FPCCI may consider long-term and consistent policies required to fuel industrial growth are now at odds with the reforms that are now indispensable to unleash the pledged assistance by multilaterals and friendly countries –- assistance that is required to not only meet the repayments on external loans (debt servicing and principal as and when due), but also to strengthen the appallingly low foreign exchange reserves (on 16 December reserves were at an extremely alarming low 6.1 billion dollars which, given the present international prices of essential items, are less than a month of imports) and for budget support.
At present, the balance of payments deficit has been contained through administrative and extremely ill-advised exchange measures that are in turn negatively impacting not only on remittance inflows, a desired form of exchange earnings, but also on import of essential raw materials that are reducing industrial output.
In addition, extending power tariff unfunded subsidy to exporters of around 100 billion rupees must be castigated for the simple reason that supporting administrative and exchange measures would not only override their envisaged positive effect on the one hand but with 33 million flood victims this largesse to exporters cannot be economically justified on the other.
This point was emphasized in the 13 October press briefing by Jihad Azour, Director of the International Monetary Fund (IMF) Department processing the ongoing Extended Fund Facility loan, that “on the issue of subsidy, as in other parts of the world, subsidy that is targeted to support certain items has proved not to be very effective. I would say it has proved to be very regressive. And in our regional economic outlook we are again looking at this issue that is showing that this is not the best way to use the very limited fiscal space that exists. Therefore, we are encouraging Pakistan as well as also other countries to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it.”
It is baffling as to why the economic team leaders are continuing to drag their feet in terms of implementing agreed fiscal and monetary policy measures with the IMF in the seventh/eighth review that dates back to mid-August this year when the 11-party coalition government was in power at the centre with the then Finance Minister Miftah Ismail privately acknowledging that the incumbent finance minister Ishaq Dar was consulted on all policy decisions during the former’s tenure.
A successful ninth review would not only release the next tranche of 894 million Special Drawing Rights (though considering the delay as the scheduled review was on 3 November it is possible that the Fund may consider combining the ninth review with the tenth) but also unlock the pledged additional assistance from friendly countries of around 4.2 billion dollars plus assistance from other multilaterals and bilaterals.
It is by now fairly evident that in spite of the rollover of previous loans from friendly countries, without the IMF declaring the pending review a success it is unlikely that any more than the already disbursed amount of around 6 billion dollars will be forthcoming, out of the budgeted 40 billion dollar external assistance requirements for 2022-23, and hence the urgency of negotiating with the Fund on the review is all the more critical.
An overview of the economic decisions by the present government reveals that with respect to agreed time-bound quantitative and structural reforms agreed with the Fund, only one measure has been implemented: the Khan administration’s unfunded relief package on prices of petroleum and products and electricity rates which, ironically, were supported by the incumbent government till 28 May and 3 June.
All other measures have been violative of the agreement and to add insult to injury the decisions reflect consolidation of elite capture given the shrinking fiscal space rather than an attempt to increase leverage with the Fund by massively curtailing current expenditure and reforming the tax structure to ensure that those with ability to pay contribute their fair share rather than increasing reliance on regressive taxes.
Copyright Business Recorder, 2022
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