Although the relief package announced by Prime Minister Imran Khan was widely lauded and welcomed by the inflation-stricken population, there was always going to be pushback from the International Monetary Fund (IMF); not immediately but eventually nonetheless. Two weeks after the announcement of subsidies that saw petrol prices being slashed by Rs 10 per litre and electricity tariffs by Rs 5 per unit rather than being raised by the same amount owing to higher international oil prices, the IMF has expressed its displeasure, postponing the conclusion of talks on the seventh review of the $6 billion Extended Fund Facility (EFF). That the IMF has termed the government’s relief package a “principle deviation” and labeled its attitude as a “one step forward, two step back” approach, should cause concern for the ruling party. It took close to two years of negotiations, key policy changes and passing of controversial legislation to restart the suspended programme, after which a much-need tranche of $1 billion was received. The IMF’s concerns that the government’s decision will have serious budgetary implications are valid as the relief will cost several hundred billion rupees and is supposedly to be paid indirectly by taxpayers.
At the same time, the war in Ukraine is having disastrous effects on global oil prices as many countries are ‘self-sanctioning’ by not fulfilling their energy need through Russia. OPEC has so far not increased supply to meet that gap in demand, thereby pushing prices upwards. In this uncertain and volatile backdrop, Pakistan’s financial condition can worsen quite rapidly if prices surge to unsustainable levels and the subsidy is kept in place. It cannot be ruled out entirely that some of IMF’s discontentment stems from Islamabad’s recent diplomatic tussle with the West, especially the USA and EU, over the position the latter has taken on Ukraine. Nevertheless, it is up to the present economic managers not to put at stake the economic wellbeing of the country for political gains. The PTI government must not forget that the recently released National Security Policy was penned by it and it directly correlates economic prosperity to better national security. If that is still the belief then they should make all out efforts to ensure no major damage is done to the economy through their own actions.
