EDITORIAL: While the Board of Directors meetings of the International Monetary Fund (IMF) scheduled till 17 May 2023 do not have approval of Pakistan’s ninth review as an agenda item, an absence that can be easily rectified if the stalled staff-level agreement is reached before then, yet at this point in time it appears unlikely for two reasons.

First, Pakistan’s economic team leaders have reportedly briefed the Fund staff that the differential of 1.5 to 2 billion dollars between pledges from friendly countries (which have been received by Fund staff) and the required external resources would be generated from: (i) other multilaterals (World Bank and Asian Development Bank); and (ii) through borrowing from the commercial markets abroad (directly from commercial banks).

While the Fund staff may have easily verified the pledges by other multilaterals through routine coordination, yet the balance of the resources required by incurring debt remain highly suspect given that since 6 October 2022 when Moody’s downgraded Pakistan’s rating, there has been a persistent downgrade by international rating agencies, thereby rendering Pakistan deeper into junk territory. The reason is rather straightforward.

Pakistan’s continuing deteriorating finances are due to flawed policies that include continuously raising current expenditure (a 75 percent rise till end April 2023 from the comparable period of the previous year) and funding it largely through issuing Pakistan Investment Bonds (PIBs) with domestic banks as the major clients that, in turn, is not only highly inflationary but is also at the cost of private sector borrowing, thereby accounting for negative large-scale manufacturing sector growth and 0.8 percent gross national product growth. This in turn has raised the spectre of default and the periodic statements by Finance Minister Ishaq Dar that there is no threat of default are being summarily dismissed by markets, both within and outside the country, as simply not credible.

Second, there appears to be a trust deficit between the Fund staff and our economic team which appears to be widening rather than shrinking with time.

The Fund staff has been forced to counter claims by the Finance Minister that all the Fund conditions have been met, thereby implying that the onus of the stalled staff-level meeting rests solely with the Fund. In its latest release to the media dated 5 May 2023 the Fund noted that the “IMF continues to work with the Pakistan authorities to bring the ninth review to a conclusion once the necessary financing is in place and the agreement is finalised.”

While on a Fund programme the standard practice is for the Fund mission to review the budget document. This review was a component of the current year’s budget presented to parliament on 10 June 2022, that in turn led to the announcement of a staff-level agreement in a press release by the Fund dated 13 July, which noted that there was an agreement to combine the seventh/eighth review and “in order to support programme implementation and meet the higher financing needs in FY23, as well as catalyse additional financing, the IMF Board will consider an extension of the EFF until end-June 2023 and an augmentation of access by SDR 720 million that will bring the total access under the EFF to about US$7 billion.”

Reports indicate that the process for formulation of the budget for next fiscal year has been ongoing for some months and the presentation of the budget by the incumbent government was reconfirmed in a press briefing subsequent to a meeting between the PDM (Pakistan Democratic Movement) coalition government and PTI (Pakistan Tehreek-e-Insaf) team on setting an election date, of which the finance minister is a member and a lead player.

With less than one month remaining for the budget to be presented to parliament (scheduled date on 9 or 10 June as per government sources) it is not yet clear whether the government has begun sharing the data with the Fund, in spite of the Resident Representative of the IMF, in her interaction with a foreign news agency rather than with the Pakistani media, stating that the Fund would discuss budget plans for 2023-24 as part of the bailout tranche release.

While engagement, as opposed to reaching an agreement, with the Fund must be ongoing, the extent of the engagement with respect to the budget is not yet known. One can only hope that the government is not proceeding without some critical inputs from the Fund otherwise the budget would be a wasted exercise in terms of time and resources of the taxpayers as it will tantamount to be a mere exercise on paper lacking applicability.

Copyright Business Recorder, 2023