Election time-frame announcement only solution

The IMF (International Monetary Fund) programme is still in limbo. The pending SLA (staff-level agreement) is neither definitive nor impossible.

It is crystal clear from the IMF’s spring meetings in DC that the external debt sustainability is of utmost importance for any country in debt distress, and that countries such as Pakistan must first ensure arrangement of gross external financing requirement before resumption of programme.

The gap for current review is $6 billion and out of which $4 billion has been arranged - including $2 billion from Saudi Arabia and $1 billion from the UAE.

The IMF wants lending partners to chip in to ensure debt sustainability. That is true for all countries undergoing debt restructuring such as Ghana, Sri Lanka, and Pakistan. As far as debt restructuring is concerned, Pakistan isn’t officially there yet and can potentially avoid the pain which countries such as Sri Lanka and Ghana are facing. This was echoed in the response of IMF’s MD upon inquiry about potential debt default by Pakistan.

However, the road to recovery is narrow, and there is little room for maneuvering. The decision is simply economic, not political. In sharp denial of the impressions coming from the government circles, the IMF insists it has not changed goal posts or engaging in any politics specific to Pakistan, but instead believes that debt sustainability is imperative for any economy, and government of Pakistan must strive to achieve it.

Thus, the focus should be on attaining the confidence of external partners which in Pakistan’s case are friendly countries and multilateral lending institutions.

Here, politics come into play. The vibes coming from China and Saudi Arabia are that political stability and policy certainty are found wanting. And that seems to be highly unlikely in the current setup. And the only constitutional way to proceed forward is by holding elections and for that the ongoing negotiations between PTI (Pakistan Tehreek-e-Insaf) and PDM (Pakistan Democratic Movement) are critical.

Although partners such as Saudi Arabia and China may not necessarily desire a democratic solution, they want political stability. One missing element is what the US wants, as historically, the superpower has influenced multilaterals and Middle Eastern partners.

The vibes from DC are that US State Department officials are distancing from Pakistan and exhibiting indifference to the current regime. There were never any signs of support from the US for the current setup. Just as there were no signs of support for IK and PTI before them.

Thus, Pakistan must bet on what China and Middle Eastern countries desire. And the recent events suggest that at least the powers that be are now talking about elections.

A week ago, the chatter in Islamabad indicated that there may be no elections in October, a sentiment which has substantially shifted in the past week alone.

This slight change is coming perhaps after the Army Chief’s maiden visit to China and PML-N leadership’s visit to Saudi Arabia.

And coincidently, a ray of hope is also coming from the IMF. Sources close to the IMF are now talking about increasing chance of SLA happening provided the remaining gross financing needs are arranged. The gross financing needs were initially $7 billion, while the government was negotiating for $5 billion. The difference is perhaps in the current account deficit assumption which is clearly lower than what the Fund had initially envisaged.

Thus, even if $1-1.5 billion is arranged (in addition to $4 billion), the SLA may happen soon. And the government is in talks with commercial banks of friendly countries to provide so.

By connecting the dots, it appears that the IMF and friendly countries’ support is somehow linked to the ongoing PTI-PDM negotiations. If these are too successful, the judiciary crisis may have an end too. In case of failure, the uncertainty would have dampened the impact on economic solvency.

The representatives of both parties in negotiations are saying that the stumbling block is the budget. Apparently, PDM wants to announce the next fiscal year budget before leaving the government while the PTI wants the caretakers to announce a stopgap budget and let the new government announce the budget for next year.

PTI perhaps fears that the PDM may announce a populous budget and that would be revised to austerity by the new government. And PTI thinks that they would win elections and revisiting budget would result in losing political capital.

That argument is not well thought out. The government is seeking the IMF review and the Fund would make sure that the government would issue a budget in conformity to the narrow economic path.

Thus, PTI’s fear is misplaced. Scratching beneath the surface, it appears that the key is the announcement of timing of elections and exit of the incumbents, which some have linked to the retirement of the current chief justice of the apex court.

Whatever the case is, it is of utmost importance that the stakeholders should come to a resolution sooner than later for the sake of the economy. The misery of 220 million inhabitants is growing. Food inflation is touching 50 percent and unemployment is growing, economic confidence is at its lowest in decades.

Last year, people were comparing Pakistan to Sri Lanka and now the comparison is being drawn with Sudan and Lebanon. Although Pakistan is much better than either of the two countries (more on this in a subsequent column), it should not be allowed to turn into a self-fulfilling prophecy. It’s time for powers to look at the bigger picture and come out of the hatred and narrowed objectives.

Copyright Business Recorder, 2023