EDITORIAL: The finance minister, Ishaq Dar, finally budged from position of keeping the PKR to dollar parity suppressed in the interbank market and allowed it to move with the market demand in compliance with one of International Monetary Fund (IMF) conditionalities.
The Fund too promptly announced the Jan 31st date of its mission’s arrival in Pakistan to begin formal talks on the much delayed ninth review. It appears that the artificial rupee parity on the interbank market was the sticking point and that the Fund was unwilling to consider any deviation on this agreed matter.
Prime Minister Shehbaz Sharif in his address after inaugurating business and agriculture loan programme for the youth on 24 January had categorically and unambiguously invited the International Monetary Fund (IMF) to “conclude the ninth review so that Pakistan can move ahead.” This is not the first time he had expressed the urgency of concluding the ninth review though one had hoped overtime that it is the last.
On 27 December, the Prime Minister acknowledged that the country had no option but to “bow down” to Fund demands to conclude the ninth review, terming it a “painful reality.” On 6 January 2023, the Prime Minister talked to the IMF Managing Director at his own request and in his subsequent address after the inauguration of the Hazara Electric Supply Corporation had stated that the Fund mission would arrive in the country within two to three days — a claim that remained incorrect till Thursday last.
Now, that the main stumbling block to commencement of the ninth review has been removed, it is now critical for the relevant members of the cabinet to implement the remaining “prior” conditions as a prelude to the start of the ninth review negotiations that would set the stage for disbursement of the next IMF tranche as well as unlock all other pledged assistance from three friendly countries that has been made contingent on the success of the ninth review in no uncertain terms notably China, Saudi Arabia and the United Arab Emirates.
Pakistan’s failure to implement agreed structural reforms and time- bound quantitative conditions during the previous twenty-two programmes explains the Fund’s reticence to grant any further waivers and the reference to the “painful reality” by the Prime Minister.
It is important to note that the Fund did suspend the programme in 2020 in the aftermath of the pandemic and promptly disbursed emergency assistance of 1.4 billion dollars (outside the programme), yet it has shown no inclination to take cognizance of subsequent requests that accounted for the delay in the sixth review, the seventh/eighth review and the pending ninth review.
And while critics of the Fund may lament its refusal to take into account the 33 million Pakistanis adversely affected by the devastating floods in the summer of 2022, especially the poor and the vulnerable, while supporting the country with emergency assistance during the global pandemic whose impact was not as debilitating on Pakistanis, yet it is by now patently evident that the Fund is unwilling to grant the country any further waivers.
The politically challenging conditions agreed with the Fund in the last successful review include raising electricity and gas tariffs to meet the economically viable objective of full cost recovery as well as maximising the petroleum levy to 50 rupees per litre on all products (the levy on petrol is already maxed out since November 2022) — measures that would raise the Consumer Price Index to over 35 percent from the already high December 2022 estimate of 24.5 percent.
Disturbingly, the incumbent economic team leaders have successfully focused the attention of the cabinet and stakeholders on these measures that may have serious socio-economic implications while ignoring their own flawed policies that need immediate withdrawal, given that these are impacting negatively on the economy each day.
These included allowing the interbank rate to be more realistically set given the daunting low foreign exchange reserves (done last week), the end of the estimated 110 billion rupee electricity subsidy to exporters, raising revenue with reports indicating that the mini-budget proposals submitted to the Ministry of Finance not only consist largely of raising existing indirect taxes and widening their ambit whose incidence on the poor is greater than on rich rather than on direct taxes premised on the ability to pay principle (with sources within the Federal Board of Revenue revealing that the Ministry has requested additional taxation proposals) and last but not least raising instead of slashing current expenditure for which a committee was set up by the Prime Minister effective 13 January 2023.
The cabinet must take cognizance of these flawed policies, determine responsibility and take appropriate mitigating measures. It is hoped that it approves and monitors the implementation of all prior conditions that include reversal of flawed policies since October last year.
Copyright Business Recorder, 2023