Do more

When the PMLN-led coalition government willy-nilly went to the IMF to reclaim the remainder of the $3 billion from the loan programme with the Fund, suspended after the PTI government fell short on its commitments, history repeated itself. Walking a tightrope, the new government has evidently been torn between saving the country from default and keeping intact whatever political capital it is left with. In the process, the government also erred on the side of politics and could not bring itself to include in Budget 2022-23 what it had agreed with the Fund in Doha. It is this inability to take make-or-break decisions that led to the budget planners softening out the rough edges of IMF diktats in the budget to limit public outrage. As expected, the IMF has not taken the toned-down budget too well, and has minced few words in telling Pakistan to ‘do more’ to meet its requirements for the revival of the Extended Fund Facility (EFF) programme. The government’s cautious approach shows it’s not prepared to risk its political capital. But by playing this cat-and-mouse game with the IMF, we are distancing ourselves from a bailout that is our last hope to avoid a balance of payments crisis. The IMF seeks decisive action, which should have been reflected in the budgetary measures.

The staggered implementation of the IMF prescription is actually doing more harm than good to the country’s economy. As a fallout of this fickle economic policymaking, the markets are cratering, the rupee is in a free fall, investors are pulling out of the capital markets, foreign direct investment is at a standstill, the world is unwilling to extend any credit line to us – the list is long and dire. The IMF is in talks with the government to get clarity on certain revenue and spending items for a full assessment; however, their preliminary estimate was that additional measures would be needed to strengthen the budget – though it has not specified exactly what those ‘additional measures’ are. On the face of it, these additional measures are a further hike in petrol and diesel prices within this week. Subsidies on the prices of petrol and diesel still continue and another partial withdrawal is likely before a staff level agreement with the IMF.

Finance Minister Miftah Ismail seems to still be hoping against hope that Pakistan can bring a not-so-cordial IMF around by making tweaks and adjustments to the budgetary measures. But the IMF is not talking about the tweaks. It has expressed concerns about the budget numbers, including fuel subsidies, a widening current account deficit, and the need to raise more direct taxes. Miftah Ismail is still confident of a successful review and a staff-level agreement with the IMF. The finance minister is either too naive or he knows too much. This has added massively to the incertitude as nobody knows where this is going to end. The IMF will not stop until it has found what it’s looking for. And if an IMF bailout is the only means to survive now then the government will have to suck it up and take the plunge like it had when it reversed the subsidies on oil. Otherwise, taking one step forward and then two steps backwards will not get us anywhere.