- Resumption of programme unlikely if conditions unmet
Prior to the 2018 general election, Prime Minister Imran Khan had vowed to ‘die before approaching the International Monetary Fund (IMF)’ if he came to power. Less than a year after his win, the PTI secured Pakistan’s 13th IMF bailout to the tune of $6 billion over three-years, $1 billion of which was released immediately to provide crucial support to fast depleting foreign exchange reserves. Desperate for dollars and lacking any meaningful leverage, the programme that was negotiated and signed was the toughest ever, with conditions that would force the government to make politically unpopular decisions. With the government unable to meet demands such as raising taxes and electricity tariffs that would drive up inflation further, the programme was suspended by the IMF in February. For the IMF to release a much needed $450 million third tranche, the PTI government is being told to increase electricity prices by Rs 1.48 per unit and take the sales tax up to a standard 17 percent on all items except medicines and food. PM Khan has reportedly refused to accept these preconditions, which is understandable. Despite his insistence that the economy is on an upward trajectory, a statement he has based on cherry-picked macroeconomic indicators such as temporary remittance upticks and a current account surplus, ground realities are much different. Pakistan currently has the lowest growth rate among all South Asian Nations at 0.5 percent and one of the highest inflation rates at over 10 percent. Better GDP growth may be a long term prospect but the PTI’s inability to reduce food prices, the primary reason for rising inflation, is a result of pure incompetence.
Pakistan has to repay $4.4 billion on account of foreign commercial loans during the current fiscal year; a reality that is bound to exert pressure on foreign exchange reserves that will start drying up unless there is some injection. With the IMF unwilling to budge and the federal government thinking about the political damage of another price and tax hike, there is little room to manoeuvre. None of the ‘reforms’ to ‘turn around’ the Federal Bureau of Revenue (FBR) have been undertaken in over two years to meet tax collection targets. Despite tall claims of cracking down on the ‘wheat and sugar mafias’, prices of both commodities continue to rise as supply remains grossly mismanaged. Mr Khan has only himself and his economic team to blame for the precarious mess he finds himself in.