Pakistan’s economic trajectory remains complicated. The optimism about future is intricately linked to effective implementation of rational, tough and robust policies along with much-needed but long-overdue structural reforms. The country signed a 9-month stand-by agreement, approved by the Executive Board of International Monetary Fund (IMF) on July 12. The SBA, amounting to SDR 2.25 billion (approximately $3 billion at approval), was a crucial lifeline for an economy struggling with the burden of external debt.

The SBA conditions lay down a de facto policy guide for Pakistan’s economy, thereby shaping its near future. With a stringent mandate of “no room for slippage or deviation,” the caretaker government has so far diligently adhered to the prescribed economic framework.

This commitment has led to the successful completion of the first review under the SBA. The recent approval by the IMF Executive Board has not only validated it but also unlocked immediate disbursement of SDR 528 million, equivalent of $700 million, providing a significant boost to the foreign exchange reserves.

The IMF has recognised the alleviation of external pressure and the stabilisation of overall economic activity in Pakistan, coupled with a noticeable acceleration. Given the positive trends, it has also highlighted the economic challenges ahead. It is thus emphasising the need for unwavering ownership to ensure that the recent improvements are sustained and ultimately embedded in the economy.

Externally, the government faces a constrained fiscal space. The heightened risks necessitate timely receipt of planned funds from bilateral partners and international lending institutions. The IMF has pointed out that given the limited financial buffers any delays in this regard will pose a significant threat. Therefore, maintaining uninterrupted financial inflows is the key to continued economic stability.

As elections are only nine days away and an elected government is imminent within a month thereafter, it is imperative for our political leaders to affirm their commitment to prioritising national interests over political motives and/ or personal gains. They should refrain from taking any economic measures that violate the terms of the ongoing SBA.

The latest IMF report offers key insights. It is important that, during the transitional period, political decisions align with the strategic economic framework established through the SBA, ensuring stability and continuity. The report says:

“Given the approaching parliamentary elections, and as at the time ahead of Board approval of the authorities’ SBA request in July, IMF staff has met with representatives of Pakistan’s major political parties — Pakistan Muslim League-Nawaz, Pakistan Peoples Party and Pakistan Tehreek-i-Insaf — to seek confirmation of their support for the programme.

“The first two parties have expressed written support for the SBA’s key objectives and policies. They have also recognised the role that the SBA will play in preserving macro-economic stability by anchoring policies and supporting external financing over the coming months. The third party, which had also supported the SBA in July, issued a statement noting the importance of free and fair elections to the successful implementation of the fund-supported programme.”

As elections are only a few days away and an elected government is imminent in a month thereafter, it is imperative for the political leadership to affirm their commitment to prioritising national interests over political motives and/ or personal gains.

It is evident from the account above that facing the aftermath of the May 9 riots, the PTI tried to leverage its political position vis-à-vis the ongoing SBA. Instead of showing a visionary perspective beyond its immediate political concerns, it sought to use its support for critical economic policies as a bargaining chip to gain some relief on the domestic front. It demanded a level playing field for transparent, fair and free elections that is also a constitutional requirement.

According to a Voice of America report, the PTI delegation told the IMF representatives that their prior endorsement of the loan programme was contingent on an assurance of transparent elections. Expressing concerns about the transparency of upcoming elections, they hinted at the possibility of withdrawing support for the IMF programme. Many observers say this move by the PTI raises questions about its prioritisation of national welfare over political considerations and adds further complications to the economic landscape.

In the lead-up to the IMF Board meeting, while the Pakistan Democratic Movement was engaged in negotiations to revive the stalled Extended Fund Facility, former federal finance minister Shaukat Tareen, and the then incumbent provincial finance ministers for the Punjab and Khyber Pakhtunkhwa had launched an “unprecedented and unceremonious” last-ditch effort to undermine the federal government’s negotiating position.

A letter apparently authored by Taimur Saleem Khan Jhagra, the KP finance minister, had surfaced in the media, revealing an expression of the provincial government’s inability to meet the provincial surplus target committed earlier to the federal government. The maintenance of surpluses by provinces during the fiscal year was a key requirement outlined in the IMF’s EFF programme. This move by key figures in the PTI had raised serious questions about internal coherence and commitment to the economic recovery agenda.

Earlier, the PTI government had taken certain actions aimed at advancing its political agenda that blatantly violated the terms of the 39-month $6 billion EFF programme. This had resulted in the suspension of the EFF and significantly undermined the trust of the lender of the last resort in the government of Pakistan.

After the subsequent resumption of the EFF, the then finance minister, Muhammad Ishaq Dar failed to steer the economy in the direction mandated by the lender. This failure exacerbated the already looming risk of default, raising concerns about the effectiveness of governance and economic management within the political landscape.

It is imperative for our political leaders to grasp the gravity of the current situation. A successful completion of the ongoing arrangement and potential initiation of a new long-term programme after this SBA are imperative. The consequences of a casual approach and shortsightedness have been significant in recent times.

While there is optimism and early signs of a recovery amid increased economic activity, it is vital to accelerate the momentum to bring an end to the economic turmoil that Pakistan has been struggling with. The need for strategic and forward-looking thinking by political leaders cannot be overstated.

Dr Ikramul Haq, an advocate of the Supreme Court and writer, is adjunct faculty at Lahore University of Management Sciences (LUMS).

Abdul Rauf Shakoori is a corporate lawyer based in the USA