Insight
Amid the looming possibility of hydra-headed challenges emerging on the economic front, Pakistan has so far managed to avert a fully-blown crisis at least for now, so to speak. Now everything depends on the future policy actions, promised by Islamabad to International Monetary Fund (IMF).
Although, the government has obtained a ‘breathing space’ for the next two to three months, the time is short and there is a long list for undertakings, handed down by the IMF, for coming out of the crisis mode. There is no chance of failure as otherwise there will be no choice for the upcoming caretaker setup but to approach the IMF for another bailout package.
The country’s economic managers have told the IMF they would not seek new a package from the Fund during the tenure of the incumbent ruling regime. “Without IMF programme, we have assured the Fund of undertaking all the required reforms to fix … the budget and current account deficits,” a top official at Finance Division said in a background discussion with this scribe.
Pakistan and the IMF held 10- day long parleys in Islamabad under post programme monitoring (PPM) mechanism for analysing the country’s ability to repay its outstanding loans of over $6 billion to the Fund as Islamabad had opted to get more funding than its allocated quota under the IMF arrangement through Extended Fund Facility (EFF).
At the end of talks, the Harald Finger, the IMF’s mission chief, for the first time, appeared before the media along with his team and briefed them about the outcome of talks in a very well-guarded and extraordinarily cautious language.
On the face of it, Pakistan’s economic team seemed satisfied that they have managed to convince the IMF team for not sharing revised macroeconomic projections with the media until the release of the PPM report, which will be published after getting approval from IMF’s Executive Board probably by February 2018.
At the twilight of the incumbent Pakistan Muslim League-Nawaz (PML-N) led regime, the government had been given a two months’ period for implementing more corrective measures in order to stop depletion of foreign currency reserves at a rapid pace.
So the IMF has gone into “wait and see” mode before taking its final stance because after the release of the Fund report, the strengths or weaknesses on economic horizon will be made public so the policymakers have a time of two months for the stopping depletion of foreign reserves.
The IMF believes that mother of all economic ills had started appearing on Pakistan’s economic horizon in the last fiscal year when the country’s budget deficit hiked to 5.8 percent of the GDP against an initially envisaged target of 3.8 percent. Some China-Pakistan Economic Corridor (CPEC) specific imports as well as increased demands through rampant spending in the wake of a rising budget deficit also paved the way for more pressure on external accounts of the economy. Thus the current account deficit widened to 4 percent of the GDP or 12.4 billion dollars.
Pakistan’s policymakers require in-depth analysis to fully understand the reasons for escalating the budget deficit with a massive slippage of 2 percent of the GDP.
According to the prescriptions shared by finance ministry with the IMF, two major reasons could be held accountable for the increased budget deficit in the last fiscal year. The first is that the FBR’s revenue shortfall caused a major dent to the fiscal position but instead of conceding it the provinces were told to continue their spending spree on the basis of a much higher revenue projections till the last moment of the fiscal year 2016-17. The Center had continuously given provinces the FBR’s projection of Rs 3521 billion for the last fiscal year but the revenue collection could touch only Rs 2263 billion by end of the day. In the wake of wrong projections, the indulgent provinces overspent Rs 200 billion each in May and June 2017, escalating of budget deficit by at least over one percent of the GDP. So this problem needs to be fixed to avoid the repetition of this same mistake in the future.
The IMF prescribed that after completion of the last EFF arrangement, 'policy inaction' in the last 12 to 16 months period had resulted in the eruption of a crisis-like situation on external fronts of the economy. Without sharing any figure on account of external fronts, the IMF said Islamabad was facing a challenging situation warranting concerted efforts to fix this problem.
Non-implementation of policies cannot be held solely responsible for all the mess Pakistan is in at this juncture, it is also due partly to the IMF’s failure to rectify the situation as it remained unable to visualise the looming structural issues on many fronts.
The last EFF program was carved out for the creation of buffer stocks by building up foreign currency reserves, which increased up to $24 billion under the IMF programme. Now the reserves had started depleting owing to a rising current account deficit.
The other major objectives involved the fixing of energy sector problems and expansion of the narrow tax base, but the situation on the ground suggests the circular debt has started piling up again up. The losses being faced by the cash-bleeding state owned enterprises (SOEs) continued unabated so doling out of national exchequer into hands of vested interest groups could not prolong for indefinite period in months and years to come.
Now the time has come when all those who are at the helm of affairs in this country will have to join hands to build up a consensus-based narrative on economic agenda for short, medium, and long-term period by decoupling economy from politics. It is imperative for bringing durable economic stability because time is short and the country is required to catch up with others in the race of prosperity.
If the existing course of action does not change for the better then there is point in complaining for our perpetual apathy and miseries, where masses will continue to languish in the cruel clutches of poverty and remain deprived of all the facilities they deserved to have as their basic rights after getting independence in 1947.
The writer is a staff memeber
