Pakistan’s IMF dilemma: Public confidence plummets further
Public confidence on Pakistan government is on a backfoot due to financial mismanagement and over-dependence on foreign funds to run the country.
Pakistan has sought funds in recent times from Saudi Arabia (USD 3 billion in 2021) and China (USD 3 billion in China’s State Administration of Foreign Exchange, SAFE deposits), as the IMF had postponed the release of EFF (Extended Fund Facility) due to failure of Islamabad to fulfill the conditionality to avail the facility.
However, after several meetings with the IMF officials, the Pak authorities announced that the IMF has agreed to release USD 1 billion at the 6th review meeting and agreed to conduct the 7th review meeting next month. The IMF’s next month’s meeting with Pak authorities is likely to discuss contours of Islamabad’s next budget.
Nevertheless, Finance Minister Shaukat Tareen’s tweet on IMF’s approval of funding met with an array of angry trolls underlining that “it is not only surprising but also regrettable that the Finance Minister, by enslaving the nation, expressed happiness over the receipt of a new installment from the IMF”. One Pak media editorial even went up to the extent of calling Pakistan as “probably the only nuclear country whose daily affairs require loans, begging for aid and this begging has continued for decades”.
In view of negative public reaction, especially regarding perceived adverse effect of austerity measures forced by the IMF on Pakistan, the multilateral financial institution has taken up PR (public relation) initiative to pacify through outreach and engagement exercises. Speaking to the office-bearers of the Lahore Chamber of Commerce and Industry (LCCI), the IMF’s Resident Representative Ms Esther Perez Ruiz informed (February 8) that the purposes of the programme suggested by the IMF is to promote country’s macroeconomic stability, fiscal and monetary policies to encourage sustainable and inclusive growth in the long-run. She added, “However, we will remain open to hear remarks, observations and concerns from your end”. The outreach was to explain IMF policies and also showcase major success stories related to such programmes adopted by other countries to the Pak stakeholders.
Appreciating Islamabad’s efforts, the IMF stated that economic activity rebounded strongly from the first waves of the ongoing COVID-19 pandemic. It noted that Pak authorities’ recent economic and financial policy efforts were appropriate to safeguard macroeconomic stability and debt sustainability. However, it warned the government regarding continued pressure on the economy on account of widening current account deficit and rising inflationary pressures. The IMF viewed that “further ambitious efforts to remove structural impediments and facilitate the structural transformation of the economy will help unlock sustainable and resilient growth, foster job creation, and improve social outcomes for the benefit of all Pakistani citizens”.
It is necessary for the recipient country to comply with IMF conditionality for the release of tranches (installments) of EFF. But Pakistanis apprehend that these conditions would make their lives difficult as existing subsidies would be curtailed, leading to increase in electricity prices, imposition of a development levy on petroleum products, withdrawal of tax exemptions (nearly Rs 350 billion). Pak citizens are also apprehensive of imposition of additional taxes of Rs 430 billion by the government in the next budget to reach IMF’s total tax target of Rs 7.25 trillion. They were concerned about future IMF stipulations, especially those affecting the low-to middle-income segments of the population.
Considering Islamabad’s vulnerability, the IMF noted that, “Pakistan remains vulnerable to possible flare-ups of the pandemic, tighter international financial conditions, a rise in geopolitical tensions, as well as delayed implementation of structural reforms. Strengthening the medium-term outlook hinges on ambitious efforts to remove structural impediments and facilitate the structural transformation of the economy”.
Observers are worried about the current state of Pak economy. They view that Pakistan’s re-entry into the IMF programme was crucial for shoring up its foreign exchange reserves. However, its harsh conditions may decelerate growth, fuel inflation, increase unemployment and erode purchasing power of the struggling households in the short-run. Meanwhile, Islamabad cannot do without IMF’s support and desperately wants disbursement of the remaining USD 3 billion loan to pursue its growth agenda before the 2023 elections.