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November 12, 2019

IMF tranche


November 12, 2019

With the IMF having okayed the next tranche of funding for Pakistan, we can hope that by the time the programme ends the country cannot be accused of having failed to fulfil its commitments. The next instalment of $450 million was approved last week after the first review of the bailout programme by IMF staff. In principle, the extension of funding is only approved once a country is meeting all its targets. This is exactly what the IMF said in a statement after review talks, declaring that Pakistan had met all the performance criteria for the period ending in September with comfortable margins. This should mean that Pakistan is following the IMF programme to the dot, and even exceeding some of its requirements. However, it is clear that Pakistan is not moving towards economic recovery any time soon.

Macroeconomic targets have not been changed, apart from lowering the inflation projection to 11.8 percent from the previous 13 percent. Most importantly, the FBR’s tax collection target of Rs5,503 billion has not changed, despite the fact that the FBR has shown a shortfall in collection. Apparently, this is to keep tax authorities on their toes, but one must wonder whether unachievable targets are ever a source of motivation, especially when the IMF's own projection shows a fall of Rs233 billion due to import compression. The government no doubt is happy with the successful review. What remains a source of scepticism is the claim that the ‘economy is betting better’. There are few who would agree with that assessment in Pakistan. In fact, this is the sort of hubris that only seems to exist in the heads of government officials, whereas most of the population continues to suffer from the effects of low investment, low growth and high inflation.

With the IMF happy with the country’s performance, there will be little change in Pakistan’s macroeconomic and fiscal targets. The trouble is that it is not the approval of the IMF that the government should be seeking, but the approval of the people of Pakistan. The fact that the revenue projection does not take into account the contraction of the economy and impact of devaluation itself is strange. One would have to assume that the people doing these reviews know how to do their job, but these are glaring omissions that would seem obvious to anyone who has a lay knowledge of economics. Going into the future, the IMF has once again flagged the electricity sector and state-sector enterprises for needing reform. One would have to wait to see what plan of action the government comes up with on this front.

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