EDITORIAL: The current account (C/A) deficit fell sharply from 319 million dollars in the first quarter (July-September) of fiscal year 2024 to negative 62 million dollars in the second quarter (October-December 2024) of fiscal year 2024 – a decline of 78 percent.
This decline post-dated the staff-level agreement (SLA) reached with the International Monetary Fund (IMF) on 30 June 2023 after the then Prime Minister Shehbaz Sharif felt compelled to bypass the then Finance Minister Ishaq Dar for not implementing two key agreed conditions under the then ongoing Extended Fund Facility programme leading to its suspension: the exchange rate was not market-based and 110 billion rupees, unbudgeted, was allocated for subsidising lower electricity tariffs for exporters.
The suspension by the IMF of the programme led to a consistent decline in remittance inflows, 4 billion dollar lower remittances, a budget deficit that was fuelling inflation to over 30 percent, as well as suspension of 12 billion dollar rollovers and other assistance from the three friendly countries – China, Saudi Arabia and the United Arab Emirates, an amount that was revealed by incumbent Finance Minister Muhammad Aurangzeb to the parliamentary committee on Finance and Revenue this month.
Aurangzeb, fully cognizant of the Fund’s concerns with respect to the appallingly run power and tax sectors, has been meticulous in ensuring that all agreed prior conditions for the next 7 billion dollar IMF loan on which SLA was reached on 12 July this year continue to be completed or else the prospect of a looming default may resurface. In this context, it is relevant to note that the Finance Minister had intimated to reporters that the Fund Board approval of the EFF, necessary prior to any disbursement, would be forthcoming by end August – a pendency that many argued may be subject to the authorities meeting all “prior” conditions.
The uploading of the Board agenda till 28 August 2024 reveals that approval of Pakistan’s EFF is not an item, which has fuelled speculation that all “prior” conditions have not been met yet. Finance Ministry sources point out that a delay could well be due to the busy Board schedule of the fund and maintain that the Finance Minister’s earlier prediction may be off by a few days and insist that the loan would be approved by September this year.
Independent economists, however, argue that most probably the deferral till next month may be due to pending “prior” conditions associated with a shortfall in revenue which, if past precedence (SBA arrangement) is anything to go by, would necessitate taking contingency measures to meet the shortfall, and foretell a rise in the standard sales tax (or some other tax agreed with the Fund staff), especially if an unbudgeted rise in expenditure has been announced.
Critics of the government maintain that the reported statement by the newly appointed Chairman of the Federal Board of Revenue, Rashid Mahmood Langrial, that the likelihood of generating the budgeted 50 billion rupees from registration by traders (50,000 only have registered so far out of 3.2 million) is an impossibility and could be a factor.
Others point to the recent decision by the Punjab government to subsidise electricity rates by 14 rupees per unit for those consuming up to 500 units for the month of August and September projected to cost the Punjab taxpayer 45 billion rupees may have been another reason for Pakistan not being included on the Fund Board’s agenda for 28 August – a decision that violates the SLA with the Fund on two counts: (i) the subsidy is not through the Benazir Income Support Programme or, in other words, is not targeted to the poor; and (ii) it is unclear what other current expenditure item will be compromised (social or infrastructure sector) or whether the 630 billion rupees surplus required to be generated to be used by the federal government, pledged by Punjab to the Fund, would be impacted.
We can only hope that the reason for the delay is inconsequential and the approval will be early next month. However, given the Fund’s sustained refusal to accommodate any deviation from pledged conditions in the last two programmes, we would urge caution and immediate engagement with the Fund staff.
Copyright Business Recorder, 2024
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