Pakistan has tried its best so far to restart its stalled $6 billion extended fund facility (EFF), reaching a staff-level agreement with the IMF late last year to undertake a series of reforms, policy changes and legislation to complete the sixth review and get a much-needed injection of $1 billion. That the current account deficit is increasing each passing month and foreign exchange reserves are falling, makes it all the more important for the government to regularize its deal with the IMF as it would open up doors to other international donors to secure more foreign loans and stabilize the external account situation somewhat. Additionally, the resumption of the EFF would also end a level of uncertainty that continues to prevail and disrupt markets. While periodic increases in energy prices are already in effect, two pieces of legislation, a mini budget and a central bank autonomy bill must be passed before Pakistan goes back to the IMF negotiation table. The mini-budget would primarily withdraw sales tax exemptions on a number of items to generate additional tax revenue by Rs 343 billion, and the SBP autonomy bill essentially gives more independence to the central bank governor to implement it monetary and fiscal policy with minimal direct interference and input from the finance ministry.
This is where the undeniable influence of politics on the country’s economic management and policy formulation is most visible, when matters have to be taken to Parliament, debated upon and get the required votes to become law. Failing to garner the requisite strength and support for pending two pieces of legislations, the PTI government has deferred its meeting with the IMF that was scheduled to begin today. This is a sensible move on part of the Finance Ministry as it would be pointless to appear before the IMF team once more without meeting all conditions and face another difficult defeat. The opposition is up in arms over both bills and has made attempts to make them more controversial than they really are. As it faces a severe backlash over the condition of the economy, in particular high inflation, it will be a test for the PTI government to ensure the bills pass during the ongoing parliamentary session as it simply does not afford any further delays.