The government’s negotiators are citing the pending International Monetary Fund (IMF) ninth review as well as the need to table the budget for 2023-24 and get its approval from parliament as key negotiating points in not agreeing to the 14 May date set by the Supreme Court of Pakistan to hold elections in Punjab.
Politicians of all the eleven coalition partners have been severely chastising the composition of the Supreme Court benches hearing constitutional petitions for several years with reports indicating that neither side is willing to back off with a potential stalemate looming large on the horizon that may compel the third force – the establishment – to cast what many still believe would be the critical deciding vote.
The question today is whether the Dar-led team of government negotiators is presenting a valid argument - a designation premised on Dar positioning himself in the centre and being the first to speak after every meeting with the Pakistan Tehreek-e-Insaf to the waiting media with arguments for not holding elections relating to economic matters. The quick response is ‘absolutely not’ on both counts for two reasons.
First, one must ascertain as to who is really at fault for the continued pendency of the IMF ninth review – pending since November 2022 as per the seventh/eighth review documents. Is it the IMF as constantly claimed by Dar or is it the refusal by our economic team leaders, headed by Dar, to accept ground realities by erroneously albeit naively arguing that the data the government shares with the Fund is sacrosanct – a stance that is inexplicable, given that the government’s data manipulation is fairly easy to identify as domestic economists routinely re-tabulate/challenge government data by accessing alternate data sources, government as well as non-government.
A series of policies and statements, their timing and abandonment, since 27 September 2022 when Dar took oath as the country’s Finance Minister would allow one to draw one’s own conclusions: (i) on 27 January 2023 Dar, after his failed official visit to Qatar reportedly to seek a large deposit in the State Bank of Pakistan (SBP) that would have minimized the Fund leverage to insist on the implementation of harsh conditions, was forced to quietly remove the cap on the external value of the rupee leading to, on the same day, the IMF team scheduling its visit to Pakistan on 31 January, thereby clearly and unambiguously indicating that the major lacuna in the start of negotiations on the ninth review was this disastrous policy that had cost the country 1.8 billion dollars in lost remittance inflows as it revived the hundi/hawala system; (ii) the IMF team left Pakistan on 9 February and Dar held a press conference the next day, after the Ministry repeatedly alerted the media that he would do so.
On 10 January Dar declared that the Memorandum of Economic and Financial Policies (MEFP) had been received and insisted that the talks ended on a positive note while the Fund’s press release noted clearly that it would not seek a Board date for approval of the ninth review and subsequent disbursement of the next tranche.
The standard procedure for the Fund is to upload the MEFP on its website as and when the staff level agreement is reached, which remains pending, and hence there is no document that may be cited as proof positive of exactly what the prior conditions were however during his press conference Dar revealed that these conditions included a raise in utility rates/petroleum levy and a mini-budget of 170 billion rupee additional taxes.
To meet these prior conditions Dar opted to follow traditional anti-poor elitist policies by passing the buck for poor sectoral performance to the consumers by raising tariffs, upping the petroleum levy, an indirect tax, with severe inflationary implications and the mini-budget envisaged a set of tax measures that can be termed as low-hanging fruit with even heavier than ever reliance on indirect taxes whose incidence on the poor is greater than on the rich; it is little wonder that the party’s electoral prospects have plummeted since; and (iii) with the ninth review still pending as of week ending 5 May 2023, nearly three months after the IMF team departed, it is clear that the lacuna lies elsewhere.
Dar periodically, at least twice a month, lays the blame on the Fund, the last such statement made on 3 April 2023. However, while blaming the Khan administration for the current state of the economy may be easily acceptable to the eleven coalition partners and their public supporters yet hopefully they would think twice about putting the entire onus onto the Fund.
Dar finally admitted earlier this month that there is a discrepancy between the Fund estimates and his own projections in the actual external committed funds required from friendly countries – of a hefty 2 billion dollars.
What must be a source of serious concern to the government is the lack of admission by the leadership of the Ministry of Finance that the economic situation has considerably worsened since the departure of the IMF team for which its own policies are responsible.
One such policy is the heavier than ever reliance on procuring domestic debt, with end January 2023 data noting a rise to 34.3 trillion rupees against the end-March 2022 figure of 27 trillion rupees, a policy which is not only (a) highly inflationary with Pakistan Investment Bonds, accounting for 20.9 trillion rupees with the rate of return linked to a rising discount rate by the State Bank of Pakistan in an attempt to minimize the negative real rate of return but also (b) crowding out private sector borrowing partly responsible for the large scale manufacturing sector remaining in the negative realm.
Dar’s insistence that he will present the budget maybe true to character however the acceptance by this own party leadership and the remaining ten coalition partners is baffling on two counts: to present an election year budget, would, without doubt, lead to a suspension of the next quarterly review, thereby freezing all pledged/in the pipeline external funding sources, which will have extremely serious implications on the country’s capacity to meet its debt obligations and critical imports.
And if a Fund supported budget is presented, given Dar’s penchant for sustaining the elite capture, all revenue sources will be from indirect taxes while current expenditure will continue to rise unabated – proposals that would further alienate the electorate. As stated last week ideally the government would extend the existing budget by as many month as it deems appropriate, and get ex post facto approval.
While passing on his own shortcomings in the economic policy making arena has long been the hallmark of what some analysts are referring euphemistically to as Daronomics, an epithet that is ill-advised given that his flawed policies are more about accountancy than economics, yet his standing within the party for as long as Nawaz Sharif remains the decision maker is not in dispute.
In this scenario one can only hope that better sense prevails and PML-N leaders close to Nawaz Sharif and coalition partners step in to insist on a change in the economic team leadership.
Copyright Business Recorder, 2023
Comments
Comments are closed.