Secondly, the 13.25 percent discount rate continues to stifle economic activity (since July 2019) though the Governor SBP recently announced a further 200 billion rupee credit injection into exporters at 5 to 6 percent as long-term finance facility and export refinance scheme - a decision that would reduce SBP profits thereby putting pressure on the fiscal deficit given that during the first quarter, an unprecedented rise in SBP profits went half way in lowering the budget deficit. Additionally, the high discount rate has attracted foreign portfolio investment in government securities which are even worse than the then finance minister Ishaq Dar's policy to incur debt equity (sukuk/eurobonds) as the return is more than 6 percent higher while the amortization period is a lot less than the five- and 10-year maturity set by Dar.
And finally, the IMF agreed to raising total budgeted current expenditure by 33 percent under current expenditure with Ehsaas programme parked under current expenditure (more specifically under grants to others) envisaging a 190 billion rupees allocation. It is relevant to note that this is 70 billion rupees more than what was realised last year for Benazir Income Support Programme which has been subsumed in Ehsaas programme). If this additional amount is taken away from the current expenditure, the actual rise is 31 percent. Development expenditure was budgeted to rise by 40 percent. And the first quarter review's projection of a budget deficit as per IMF was 7.6 percent. In effect, this deficit needs to be contained on an emergent basis as this is also exacerbating to inflationary pressures.
The IMF's insistence on upfront conditions was based on our history of not implementing structural reforms, including governance reforms particularly in the poorly performing power/gas and tax sectors, which are, without doubt, imperative. However, a look at the achievements of the incumbent government reveals that these reforms remain pending and that the poorly performing sectors are engaged in meeting IMF conditionalities through following the examples set by their predecessors notably passing on the buck to hapless consumers - households seriously compromising their capacity to withstand the price hike as well as the industrial sector which accounts for contracting output with a consequent impact on unemployment levels.
The conclusion is something has to give or else the present government would either have to abandon the IMF programme in the face of mounting public resistance/opposition or else fall as the carefully crafted majority in parliament may unravel due to this pressure. In other words, it is critical for the visiting Fund staff and the Pakistani team leaders to revisit/tweak some of the policies currently in place or else the major objective of the Fund programme would be lost yet again.