The staff-level agreement on a resumption of the $6 billion Extended Structural Adjustment Facility has been reached, paving the way for the IMF’s Executive Board to give its approval next month, but only if certain preconditions are met. Interestingly enough, the toughest will probably be the amendment to the State Bank of Pakistan Act, which the IMF insists must be passed by Parliament, not by a presidential ordinance. How the government intends to get parliamentary approval for that in such a brief time, is not known, especially considering the uproar from the Opposition over another amendment, passed in the recent joint session of Parliament, because someone thought it was the demanded amendment.
The government is also preparing to withdraw sales tax exemptions, because the IMF has given a new revenue target, with austerity measures planned, including a major cut in the Public Sector Development Programme. More hurtful of all will be a Rs 4 per month increase in the Petroleum Levy, for five months. This electricity tariff will also go up to a level which will be determined by the circular debt.
PM’s Finance Adviser Shaukat Tarin hinted that part of the reason for the present situation was his predecessor, Dr Hafeez Sheikh, who had started the process. The attempt to make do without the IMF has clearly stalled, with the present slew of measures starting off with an interest rate hike. The government was already facing inflationary pressures brought on by the initial IMF preconditions, and it seems that the new measures, while they will probably avert the financial collapse staring the country in the face, will almost inevitably bring a fresh wave of inflation. The increase in fuel and electricity prices will not only mean that the cost of production for the local market will go up, but exports will also be negatively impacted. The PTI seems to have been right to rail against the IMF when it campaigned, but once in office, it too succumbed to the need to do its bidding.