The IMF deal is very likely on the cards. The lender of last resort is stuck with Pakistan irrespective of the country gaining fiscal prudence and instilling structural reforms. The final programme contours are nothing like initially planned out by the Fund. The IMF is in a bind as it must keep the fiscally and externally unsustainable country afloat.
The fine point is that if the previous Stand-By Arrangement (SBA), which was supposed to be the bridge facility till the new government came and signed into an Extended Finance Facility (EFF), was based on sustainable macroeconomy, then there is nothing wrong with the current conditions.
At the time of SBA, Pakistan’s macroeconomic conditions were more vulnerable. The SBP reserves went down to as low as $3.5 billion and secondary market yields on Pakistan’s global sovereign bonds were skyrocketing. The global situation was bleak as well – Sri Lanka defaulted, and others were moving in that direction as global inflation and high interest rates were making these sick economies sicker.
Now both the local and global conditions are better. There is no fear of immediate default and there are no indications on the run-on currency. Thus, if the debt was sustainable then, it should be very much now.
The reality is that neither the debt was sustainable then nor it is now. The fact is there were no efforts toward real reforms, then or now. However, the IMF cannot put its foot down now, as the Fund let it pass earlier. The government is leveraging upon it and is likely to get a $7.5 billion deal.
In essence, the IMF loan is nothing more than a working capital credit. The government is getting money to keep on running its unsustainable policies and poor-quality expenditure. And the revenue numbers are plugged to balance on paper while the measures are not enough to generate adequate revenues.
In the first MEFP sent by the IMF, there were taxes on agriculture and retailers. There is nothing on them in both federal and provincial budgets. These two sectors comprise of almost half of the economy. The government let these two sectors spur, and further taxed the already burdened remaining half.
PML-N and PPP attempted to protect their core constituencies – urban retailers and rural feudal. The axe falls on formal middle and lower- middle class, and the corporate sector. The sacred cows including civil and military bureaucracy are sheltered.
The coalition partners fought on the size of the cake (PSDP) and there was no debate on the quality of the spending and on multiplier impact of the spending. All they want is a share in the shrinking pie. Since a large part of the population did not vote for them, perhaps they don’t care for them.
And the IMF doesn’t care either. The harsh truth is that neither the IMF nor the government is interested in reforms and for the betterment of youthful economy.
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