EDITORIAL: The National Security Committee meeting had a two-point agenda: the state of the economy and the rise in terror-related incidents in the country.

While the latter concern was quickly dealt with as the unescapable solution was to give carte blanche to the army to deal with the growing menace yet, reportedly, the presentation given the state of the economy highlighted the politically extremely challenging pledges made by the Pakistan Tehreek-e-Insaf (PTI) economic team leaders to the International Monetary Fund (IMF) whose implementation is by now acknowledged to be critical for the success of the ninth review, without which all other external assistance, including from friendly countries, is not expected to be disbursed.

However, while there was agreement that all conditions (time-bound and quantitative) must be met, yet there was general disquiet on the possibility of civil unrest. The narrative that without the Fund programme and its associated green light to other external lenders, the macroeconomic situation will be even worse than if the highly inflationary and anti-growth policies of the Fund are implemented is not expected to find any traction within the general public.

Unexpectedly, former Prime Minister Imran Khan in a televised address also supported staying the course on the Fund programme, a view that Shaukat Tarin, finance minister during the last one year of the Khan administration, no doubt endorses as he, like his two successors – Miftah Ismail and Ishaq Dar – tried and failed to renegotiate/phase out the harsh upfront terms of the Fund agreement but merely delayed the pending review’s success to the detriment of the state of the economy.

The question that needs to be asked is whether at this moment in time the present economic team is embarked on a policy that would satisfy IMF concerns? A look at the series of events since the last successful review was approved by the Fund Board is an eye opener.

The seventh/eighth review was approved by the Fund Board on 29 August 2022 and the tranche released by 2 September – a release that sent the signal to the international community - multilaterals, bilaterals, rating agencies - that Pakistan was back on track and would implement all agreed conditions.

The incumbent finance minister was appointed on 27 September and on 6 October he announced the extension of 110 billion rupee unfunded electricity subsidy to exporters, a decision against the spirit of the Fund programme.

This was commented on 13 October by Azour, the Director of the Department dealing with Pakistan’s ongoing fund programme: “on the issue of subsidy, as in other parts of the world, subsidy that is targeted to support certain items has proved not to be very effective.

I would say it has proved to be very regressive…we are encouraging Pakistan… to move from an untargeted subsidy that is a waste of resources and to dedicate those resources to those who need it.”

The same day, coincidentally, Moody’s Investor Services downgraded Pakistan’s sovereign rating citing the floods as the major reason, with negative implications on the rate of equity borrowing by the country, with the finance minister contesting the downgrade by stating that Moody’s neither consulted the Ministry of Finance nor the State Bank of Pakistan. By 21 October Fitch downgraded Pakistan’s rating and clarified that “the downgrade reflects a further deterioration in Pakistan’s external liquidity and funding conditions and the decline in foreign exchange reserves.”

On 31 October a 1.8 trillion rupee agriculture package was announced with more than 85 percent consisting of commercial loans to farmers. While many have expressed concerns over the possibility of this being hijacked by the rich landlords and in instances where the government steps in to ensure the poor and subsistence farmers get their due share through subsidised credit the possibility of IMF concern over this subsidised credit is a foregone conclusion.

On 21 December Fitch rating agency downgraded Pakistan’s long-term foreign currency issuer default rating and inexplicably this was done the same day as approval of 1.5 billion dollar Asian Development Bank financing for flood relief and the much-awaited upgrade by the Financial Action Task Force from the grey list.

And what is even more disturbing is the decision announced by the government to keep prices of petrol and products unchanged from 1 to 15 January by absorbing the loss of revenue due to downward adjustment of the petroleum levy – an easy source of financing that Miftah Ismail, the previous finance minister was relying on to the tune of 750 billion rupees to meet the rising revenue requirements.

While post-27 September 2022 policies have been inexplicable at best, the fact remains that the government must establish a more informed extended policymaking forum prior to implementation of any decision and the prime minister must be a key player in all decisions.

There is talk of a 3 percent flood levy on imports as well as raising other regressive indirect taxes further – decisions which have been the norm in the past but which the economy and the general public can no longer endure. There is a need to reform the tax structure as well as the power sector, instead of simply passing on the buck to the general public to sustain the elite capture of resources including subsidies.

The NSC also agreed on several measures to halt the economic downslide including imports rationalisation, and preventing illegal currency outflows especially through hawala channels.

On his part the Finance Minister briefed the committee about the “economic stability roadmap of the government including the status of discussions with international financial institutions, exploring other financial avenues based on mutual interests as well as relief for the common people”.

Of the issues that were discussed and some concrete measures were agreed to for their implementation the one of great interest is the deteriorating condition of food security. Due to agricultural neglect, Pakistan ranked 92nd out of 116 countries on the Global Hunger Index in 2021, as its hunger was categorised “serious”.

Given the accentuating climate change – there are 33 million food victims following floods in Sindh and Balochistan - unstable economy and political uncertainty, the food security situation in the country has further deteriorated.

We, as a nation, have lived beyond our means for far too long and have neglected to correct course at our own peril. The economy is critically poised and the moment of reckoning is upon us. Now that the decision has finally been taken to comply with conditions agreed with the IMF, it is essential that we proceed in right earnest with a promptness that the situation demands as time is of essence.

It is a foregone conclusion that despite the best of intentions and possible efforts to shield the vulnerable sections of society from the torrent of inflation that compliance with the Fund’s conditions would unleash, the people would have to brace a deluge of price escalation.

This would require a concerted effort and coordination between the federal and provincial governments as well as the law enforcement agencies. For this purpose, creation of a supra body on similar lines as the National Command Operation Centre (NCOC) that helped steer the country through the Covid pandemic would be helpful.

It would help navigate through the myriad problems afflicting the economy and deal with the ensuing unrest triggered by the fallout of adhering to the stringent but compelling IMF conditions.

Copyright Business Recorder, 2023