May 22, 2023 (MLN): Frustrated Ishaq Dar, amid three months of assuring the nation about the revival of the IMF program and the signing of staff level agreement, rebuked the IMF for apparently changing the goal-post.
With the budget around the corner, Mr. Dar’s mood, though not vagary, has raised speculations if the economic policies will be awry in respect of the IMF demands.
Since 2023 is constitutionally the election year and the incumbents’ political capital has taken a blow, the upcoming budget has turned out to be a lodestone; whether it will be a ‘public friendly budget’ or an ‘IMF appeasing budget’.
Dar, trying to browbeat the IMF is not peculiar. In the past few months, the minister has time and again rebuffed the claim that Pakistan’s aversion to default is dependent on the IMF. He also accused IMF of requiring stringent measures and continuously asking to ‘DO MORE’.
In reality, the financial czar also mishandled the crisis, mainly his obsession with controlling the exchange rate which resulted in a loss of approximately $1.8 billion on account of remittances that diverted to Hundi / Hawala where lucrative rates were offered.
Towards the end of January, the artificial ceiling on the exchange rate was lifted which lead to a sharp depreciation of the currency followed by IMF staff visit to Pakistan.
The government introduced a mini budget imposing additional tax measures worth Rs.170 billion to comply with the fund’s demand. Now the bone of content between the fund and Pakistan remains the securing of external funding commitments. Saudia Arabia and UAE have pledged $2 billion and $1 billion respectively, however, this is shy of the fund’s requirement.
The clock is ticking, there is a possibility that the ninth and tenth review of the fund may be combined. In case of a failure to ratify the SLA by June 2023, the country may have to enter a new IMF program in the wake of the fragile state of forex reserves and the huge debt liabilities.
Considering the simmering political crisis of the country, the shrinking political capital of the incumbents and the constitutional requirement to conduct elections in the ongoing year, the likelihood of a populist budget cannot fall on deaf ears. Mr. Dar’s recent statements have amplified its probability. The question arises; ‘Can Pakistan sideline the IMF?’.
According to Bloomberg, albeit the country may be able to honor the debt repayment of $3.7 billion in the remaining part of fiscal year with a $2.4 billion rollover expected from the Chinese, in the absence of a $1.2 billion tranche from the IMF the other avenues of foreign inflows will remain restricted.
The key to the revival of the IMF tranche is (i) to secure additional funding commitments from friendly countries and (ii) to take IMF on board while framing the financial bill.
The relief measures through budget may be the final hope to regain the lost trust of supporters who are going through hell amid CPI touching 36.4% for the month of April 2023. It is worth mentioning that the prices of essential food items have sky-rocketed north of CPI with wheat price surging 106.7% year on year, rice price by 87.86%, eggs by 100.88%, potatoes 76.87%, and pulse by 57.19%, taking food inflation for April to 46.8% and 52.2% in urban and rural areas respectively.
An IMF-dictated budget, as expected, may further burden the poor, though there is no escape. Those in power kept kicking the can down the road rather than instigating structural reforms.
The upcoming budget has grabbed the eyes because of its timing coinciding with the peak of political unrest, stalemate on the IMF front, and noises of default gaining strength.
The focus should be directed toward broadening the tax base and fiscal consolidation, rather than the conventional approach of levying more taxes to contain the deficit. The IMF program’s revival is imperative, a default on the cards can be a nightmare!
Copyright Mettis Link News
Posted on: 2023-05-22T10:30:56+05:00