Challenging opportunity

The staff-level agreement (SLA) Pakistan signed late last month with the IMF for a Stand-By Arrangement (SBA) has finally been rubber-stamped by the Fund’s executive board, bringing the positive sentiment prevalent in the Pakistani markets to its apogee. The PSX has been buoyant ever since the announcement of the SLA, posting new gains every day, with the rupee rising in concert to recoup its losses of the previous months. On Thursday, the PSX benchmark index soared to 45,971 points before settling at around 45,255 because of profit taking, while the rupee appreciated against the greenback by another 0.37 per cent on the inter-bank market, closing at Rs276.46 to a dollar. This executive board’s nod led to an immediate disbursement of about $1.2 billion, which combined with the $2 billion and $1 billion received respectively from Saudi Arabia and the UAE bolstered the country’s forex buffer by some $4.2 billion. More importantly, the SBA has bolstered Pakistan’s credibility, ensuring the requisite financing will flow from multilateral and bilateral partners to help the country stay afloat through FY24.

These are all encouraging developments and must be lauded as such. However, it is important to remember that $4.2 billion is barely adequate to cover one month of Pakistan imports, and the fact that this modest hard currency injection has had such a salutary effect on our markets is actually a measure of how bleak the situation is. What’s more, it took the government nearly a year to raise this financing, after a herculean effort involving everybody in leadership. Clearly, raising similar financing in the future will be next to impossible unless we improve the fundamentals of our economy. The drift is that the SBA provides the authorities a window of opportunity to restore macroeconomic stability and address our economy’s inherent imbalances, and this rare and vanishing opportunity must not be squandered.

There is no denying that the challenges facing the economy over FY23 were steep; the Fund did well to take those challenges, including the impact of last monsoon’s flooding disaster, into account while finalizing the SBA. But none of that absolves Dar from the responsibility for missing the fiscal targets he kept insisting through the closing of FY23 would be met. The same targets have now been set for FY24 and must be achieved at any cost. The authorities will have to remain on their toes throughout the fiscal to ensure the revenue targets are met. The government will find that we have reached a point where we can no longer dither or oscillate over the problems that have plagued our energy sector, including the issue of the so-called circular debt. Answers must also be found for the rotten state-owned enterprises (SOEs) that have been guzzling the nation’s resources for decades now. Above all, successfully concluding the SBA will require fiscal discipline – which no doubt will be doubly difficult as the government gears up for the coming general election. PM Sharif must personally ensure that any and all subsidies his government decides to dole out are fully financed. By far the biggest challenge on the hands of the government at this point is how to kickstart the domestic economy. The monstrous inflation that has only started to slightly ebb has forced business closures and killed thousands of jobs. Incidentally, the IMF’s inflation forecast for FY24 (25 per cent) is higher than the government’s (21 per cent), which is probably why the Fund’s growth forecast (2.5 per cent) is also a percentage point lower than the government’s (3.5 per cent). We are minded to share the government’s optimism on both these counts, but the burden of proof is on the government. Godspeed and good luck.