Blueprint for the IMF

Finance Minister Asad Umar has stated that the Memorandum of Economic and Financial Policies (MEFP) has been submitted to the International Monetary Fund (IMF), a prerequisite for consideration of a bailout package by the Fund, and "it is under discussion." This implies that the government, in spite of public statements to the contrary by both the Prime Minister and the Finance Minister, has not definitively decided on the terms and conditions that would be acceptable for a bailout package. Gerry Rice, Director Communications Department, in a press conference in Washington DC last week, stated that "clearly debt transparency is essential to conduct proper analysis of the sustainability of a country's debt," which raises two questions: has the IMF accepted the government's data with reference to external liabilities in general, and to China in particular? If so, then why did Rice reiterate that "one of the things we do in every programme is to have a very detailed debt sustainability analysis to ensure that indeed the country's debt profile is sustainable" though he added that "I don't have the details of the discussions:" and second, talks with the Fund staff are now scheduled for February according to reports due no doubt to the government's repeated claims there is no urgency to go on an IMF programme. The basis for this assertion is undoubtedly the Saudi 6 billion dollar package (3 billion dollars parked for one year in the State Bank of Pakistan and 3 billion dollars deferred oil facility) with the China and the UAE packages not revealed to the public though there are statements to the effect that the short-term balance of payment requirements have been met. Or in other words, the question is precisely what time period would the support packages from the three friendly countries lead the administration not to feel a sense of urgency in acquiring an IMF package?
The response to the latter question rests with the performance of the macroeconomic fundamentals and in their improvement over the next few months. The government firmly believes that it has the capacity to change the fundamentals over a relatively short period of time. While this sentiment is not backed by market perceptions, given the continued decline (as per data released) in the stock market index, exports, industrial output and foreign direct investment during the first five months of the current fiscal year, yet the cabinet as well as a large part of the population is still convinced of Prime Minister Imran Khan's honesty and his unwavering commitment to make a major difference in the way the country is governed compared to previous administrations. However, while fully supporting the Prime Minister in his endeavours to end corruption and bring back ill-gotten wealth, a view incidentally not shared by sceptical senior bureaucrats, Business Recorder would like to point out to the Cabinet that while being overly optimistic does in some cases act as a fuel to change negative market perceptions, market sentiment in Pakistan remains negative as reflected by the current macroeconomic fundamentals more than 100 days after the PTI took over the reins of government.
The government has yet to sell the idea that it would succeed in implementing challenging reforms and bring back wealth held by Pakistani residents abroad, failing that, to compel them to pay income taxes on that wealth stashed abroad, which may account for the negative market perceptions. There are reports that the administration is facing impediments to improving governance being attributed to bureaucrats accused of loyalty to previous administrations and fear that implementing some policies may leave them open to investigation by the National Accountability Bureau. Furthermore, the government has yet to implement any out-of-the-box solution and is continuing economic policies of the past particularly with reference to reducing development as opposed to current expenditure to reduce the budget deficit to sustainable levels, relying on taxes that are not doable which accounts for 100 billion rupees lower revenue collection than projected as well as raising taxes on existing taxpayers rather than widening the tax net. The Prime Minister, like his predecessors, is counting his chickens before they are hatched by adding on proposed investment as foreign direct investment subsequent to his meetings with foreign prospective investors.
To conclude, the government needs to take some macroeconomic measures that would give a comfort level to the market. To date the Prime Minister has claimed that the 10 plus taskforces have completed their work, without visible stakeholder input, and it is unclear which of the recommendations would be adopted and if adopted how many are implementable.