EDITORIAL: Confirmed reports suggest that the visiting International Monetary Fund (IMF) mission met Finance Minister Muhammad Aurangzeb, Jameel Ahmed, Governor State Bank of Pakistan (SBP) and Rashid Mahmood Langrial Chairman Federal Board of Revenue (FBR) on Tuesday though details of discussions were not released by either the Fund (which is usual as staff typically wait for the end of the mission to upload a press release) nor the authorities (which is usual if discussions on ongoing policy measures failed to meet the time bound quantitative conditions and structural benchmarks that were agreed).
Given that Aurangzeb and Ahmed are signatories to the loan agreement on behalf of the people of Pakistan, their engagement with Fund staff indicates that policy level as opposed to sector-specific loan conditions came under discussion; yet speculation that the focus was on the revenue shortfall has coalesced around the attendance of FBR chairman Langrial.
There is a projected revenue shortfall of 230 billion rupees by end-December 2024 from what was budgeted — a budget that was cleared by the Fund staff as a prior condition for the ongoing 7 billion dollar Extended Fund Facility programme that was formally approved by the Executive Board of Directors on 27 September — a delay sourced to the government meeting all prior conditions.
What is also relevant to note is that: (i) the revenue target envisaging a 40 percent rise from what was realised the year before was unrealistic, as a 20 percent rise is the maximum achievable, given the extremely fragile state of the economy — a rate that has been achieved to date.
This was pointed out by Business Recorder as well independent economists at the time of the budget announcement on 9 June 2024; (ii) reliance on raising existing taxes on the salaried which has further shrunk their capacity to sustain their quality of life leading to a decline in across-the-board consumption as well as raising indirect, easy to collect, taxes whose incidence is more on the poor than the rich, leading to a further shrinking of demand for essentials, including electricity; and (iii) the budgeted gross domestic product (GDP) growth of 3.5 percent on which around 200 to 300 billion rupees of the projected revenue estimate is based, was considered unlikely given the administrative and fiscal measures agreed with the Fund.
The GDP growth has already been revised downward by lenders as well as government sources.
The fault therefore can be laid at the doorstep of the Fund as well as Pakistani authorities’ — the former for not ironing out a design flaw and the latter for failing to bring what was achievable to the Fund staff’s notice.
There is a need for the stakeholders to acknowledge and focus on dealing with two major issues that persist in the economic team’s negotiations with the lenders. First, the argument that the country has little leverage as the need for donor support is overwhelming at present.
This is true as the threat of default continues to loom large on the horizon, but to increase leverage requires a massive cut in current expenditure which inexplicably was allowed to rise by 21 percent in the current year — a rise that, needless to add, was approved by the Fund and the government.
Slashing current expenditure would automatically raise the country’s leverage in negotiations with the Fund, but sadly that is still off the table even as fiscal/monetary/administrative measures that seek to overburden the common man are being implemented.
Second, there is increasing literature on the web on the failure of the Fund to adapt its standard policy prescriptions to unique economic factors in any given debtor nation.
Unfortunately, there is also a mindset in the country’s economic team leaders that the Fund prescriptions are good economics and that the way forward is not to present empirical data to debunk the Fund staff of a prescription or two (for example, the efficacy of past privatisations based on a detailed study), nor to use the data to re-evaluate their own support for a particular policy premised on their by now dated exposure to the West.
It is, therefore, critical for the government team to evaluate all policy measures not by setting up a task force, which failed during the Khan administration as conflict of interest seeped into the deliberations, but by undertaking studies that are already available but are gathering dust in relevant ministries as well as in FBR.
Copyright Business Recorder, 2024
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