Amid this critical juncture of our economic history, the newly appointed Finance Minister Shaukat Tarin has publicly committed to undertake all crucial decisions for putting the economy back on a higher growth trajectory. But first of all, he will have to convince the International Monetary Fund (IMF) to show an extraordinary lenient attitude towards the country.
In his maiden press briefing, he seemed clear-headed and described the economic ills with crystal clear thoughts. The gigantic challenge lies ahead, and that is how he will implement his lofty but desirable wish list.
Ruling out the possibility of exiting the IMF programme under $6 billion Extended Fund Facility (EFF), Tarin said Pakistan cannot implement impractical demands such as hiking of electricity tariff by Rs5 per unit till June, and slapping additional taxes of over Rs740 billion in the upcoming budget.
The newly appointed minister actually wants to move ahead with pro-growth policies in order to provide stimulus to the economy by saying goodbye to the stabilisation era and then focus on an increased development spree to run the wheel of the stagnant economy. With the moving wheel of the economy, he believes that the tax revenues can be jacked up by promoting economic activities.
The question is how this wish-list will turn into macroeconomic numbers acceptable to the IMF. First, Islamabad will have to convince the staff with a viable solution, and then they will have to satisfy the IMF’s executive board that Pakistani authorities had come up with viable plans.
There could possibly be three scenarios. First, when Pakistan deviates from the agreed structural reforms and imposed conditions, the IMF may suspend the ongoing EFF programme, as they did on the eve of the first wave of the Covid-19 pandemic. It may only happen if third wave of Covid-19 becomes worst in Pakistan.
Second option may be Islamabad’s decision to say goodbye to the IMF deliberately with the intention to exit from the IMF’s existing programme by presenting a budget for 2021-22 that is completely in contrast to what was agreed on the eve of the completion of the second to fifth reviews. It includes not fulfilling of doing away with GST and Income Tax exemptions, fixing FBR target below the IMF’s envisaged tax collection figures, undertaking structural reforms, heading towards expenditure spree by granting substantial increase in pay and pension, allocating increased funding for development and failing to erase the monster of circular debt.
In such scenario, former finance minister Dr Hafiz A Pasha said that Pakistan would have to manage $40 billion for repayment of external debt obligations over the next medium-term. He said that it was the calculation of the IMF staff which they had done in their staff report in April 2021 after completion of the reviews. Without backing of IMF programme, it would be hard for Pakistan’s economic managers to raise programme loans from other multilateral creditors such as the World Bank and Asian Development Bank.
One possible option could be getting generous financing from bilateral donors such as from Saudi Arabia. There are hopes from PM’s ongoing visit from Saudi Arabia, but hope for getting massive external financing from brotherly countries is not a good omen when they themselves are already facing a difficult economic situation. Pakistan will have to stand up on its own feet to manage its economic woes.
Third scenario can be where the finance minister and Special Assistant to PM on Finance and Revenues Dr Waqar Masood successfully manage to convince the IMF staff of striking a balance between stabilisation and growth to continue the programme. It will not be an easy task as it means walking on a tight rope and dwellers of Q Block (Ministry of Finance) at Pakistan Secretariat Islamabad really need to see what is happening on the ground.
There are certain reasons for their firm belief that it could happen. In the background discussions, the high-ups argued that the IMF programme was designed by accepting front loaded conditions. It was a highly flawed strategy and even the PM was not fully taken into confidence about such harsh conditions of the IMF.
When the former economic team including Asad Umar, Younas Dagha, former Secretary Finance and Tariq Bajwa, former State Bank of Pakistan governor were giving a tough time to the IMF, the team was changed. The new team under former minister Abdul Hafeez Shaikh struck the IMF deal within a couple of weeks because they accepted all conditionalities.
In early 2020, when the second review was just at completion stage, Covid-19 broke. So, it almost took a full year to revive the IMF programme that remained in suspended mode.
It is only when then IMF programme was revived that the prime minister got to know that the government would have to hike power tariff by Rs5 per unit till June 2021 and then they will have to adjust tariff on quarterly basis. Prime Minister Imran Khan took decision that power tariff would not be hiked at all. Meanwhile, the economic team changed and Shaukat Tarin assumed the reins of power.
Now it is upon the newly appointed team, with a home-grown agenda and full backing of political masters, to convince the IMF that they were able to strike a balance and create a win-win situation for both sides. How much it will become feasible can only be known over the next few months.
Tarin says that Pakistan will not exit from the IMF programme but will make effort to convince the Fund to give space by showing a lenient attitude. “We will achieve the targets envisaged under IMF programme with our own devised strategy, as instead of doing away with tax exemptions, we will broaden our tax base by bringing new taxpayers into the system,” he added.
He said that he would ask the IMF to give space to achieve the targets using our own strategy, as more tax revenues could be collected without additional taxes and abolishing of tax exemptions by broadening of the tax base. We cannot hike the power tariff because it will result in a surge in inflationary pressures. We will ask the IMF to review conditions that pose political cost, he added.
It is a good wish-list, but it is premature to judge how much can be attained from the IMF in a hostile environment, where lenders of last resort know that it will not be easy for the economy to survive without the IMF programme.
The writer is a staff member