EDITORIAL: Finance minister Ishaq Dar while addressing a seminar titled ‘Revising economic stability through strengthening public financial management’ organised by the Ministry he heads, – Finance and Economic Affairs – acknowledged the obvious: a delay in the International Monetary Fund (IMF) ninth review.
However, yet again Dar laid the responsibility for the delay squarely on the Khan administration, arguing that “failure to meet commitments” created a trust deficit that continues to bite.
Accuracy dictates that it be noted that the delay in the implementation of agreed reforms under the ongoing Extended Fund Facility (EFF) programme, specifically structural reforms, till the second to fifth review dated 8 April 2021 was due to the global pandemic and the Fund’s stated policy to assist countries cope with the negative fallout of a lockdown.
The Fund stated in the document that “aside from health-related containment measures, their (Pakistan authorities) response included a temporary fiscal stimulus, large expansion of social safety nets, monetary policy support, and targeted financial initiatives.
These measures, supported by sizable emergency financing from the international community, including under a Rapid Financing Instrument, helped contain the first Covid-19 wave of cases and the impact on the economy.” With the next scheduled review on 4 June 2021 Shaukat Tarin appointed as the finance minister on 16 April 2021 had a window which he mistakenly thought he could use to convince the Fund to phase out the harsh upfront conditions.
End December 2021 Tarin was forced to not only table the autonomy of the State Bank of Pakistan bill in parliament but also remove tax exemptions by 343 billion rupees which he specified, included tax exemptions on machinery (112 billion rupees) pharma (160 billion rupees) on luxury items (71 billion rupees). The pending sixth review was deemed a success and the tranche disbursed by early February 2022 proof that any trust deficit with the Fund was resolved.
On 28 February 2022 the then Prime Minister, Imran Khan, reneged on the sixth review agreement after he announced an unfunded subsidy package on petroleum and products as well as electricity at a time when the international price of fuel was rising subsequent to the Russia-Ukraine war and an amnesty scheme effective 1 March to benefit the construction sector.
However, he failed to survive the vote of no-confidence against him on 9 April and the eleven-party coalition government that assumed office thereafter, did not reverse these measures till 27 May and 3 June or, in other words, these unfunded subsidies continued for a longer period under the Shehbaz Sharif administration than his predecessor’s.
Miftah Ismail, as the finance minister, forged a deal with the IMF in August 2022 (though the budget announced in June was vetted by the Fund) and hence issues of the trust deficit if any stood resolved as the seventh/eighth review was declared a success and the tranche released early September.
The ninth review, pending since 3 November 2022 as per the previous review, can therefore not be laid at the doorstep of any previous administration or indeed a previous finance minister as the completion of a review and subsequent disbursement is empirical evidence that all pending matters at the time were resolved.
The onus for the delay in the ninth review therefore rests with the incumbent economic team leaders and any trust deficit issues are therefore theirs to resolve especially as: (i) the economically flawed decision to control the interbank rupee rate had disastrous consequences and is directly responsible for 2 billion dollar lower remittance inflows during the first seven months of the year in comparison to the comparable period of the year before.
However, this policy was abandoned on 26 January 2023 prompting the Fund to announce the dates for the ninth review; however, soon after the mission departure on 9 February the interbank rupee was again controlled reflected by the re-emergence of the grey market – a reversal that without doubt widened the already significant trust deficit; and (ii) an external factor notably the failure to secure rollovers and additional funding from friendly countries as pledged with reports circulating that the Saudis are now willing to invest as opposed to lend the agreed funding and this has delayed the process.
Given that securing assistance from friendly countries has always been a feature of the ongoing programme, it is little wonder that without these inflows the programme is pending.
While one can understand that the Finance Minister is under much stress as he is also being held responsible for the flawed monetary policy (an exclusive domain of the central bank after the latest amendment in the central bank law) dating back to October last year, yet using the seminar organised by the Ministry he heads is nothing but an attempt aimed at promoting a woefully flawed narrative.
Copyright Business Recorder, 2023
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