Sunday October 02, 2022

If polls are called in October, IMF won’t have any issue in dealing with caretaker setup: experts

July 24, 2022

ISLAMABAD: In case the country goes to the polls in October and a caretaker setup is installed at the end of July for 90 days, the International Monetary Fund (IMF) will have no issue with the caretaker setup signing an agreement after approval from its executive board by August 25-26.

These views were expressed by eminent economists while talking to The News. However, the economy will continue to bleed if the ongoing political turmoil does not end even after general elections, they warned. “The IMF wants to bail out Pakistan and save the country from the Sri Lanka-like situation.

The Fund acts like an emergency ward and it all depends upon the patient if it wants treatment or not,” said Dr Nadeem ul Haque, Vice Chancellor of Pakistan Institute of Development.

“In the past, caretaker Prime Minister Moeen Qureshi had negotiated a loan program with the IMF to steer the country out of the economic morass and signed it, and later Benazir Bhutto as Premier not only endorsed the programme but also implemented it,” said Dr Waqar Masood Khan, a retired Pakistani civil servant who served as adviser to former Prime Minister Imran Khan on revenue and finance.

Dr Waqar Masood Khan said, “The IMF inks the agreement with the government of Pakistan and it will have no objection to signing an agreement with a caretaker setup.” When asked if the caretaker setup was installed by the end of July and the IMF asked the caretaker setup to further increase electricity and gas prices keeping in view the perpetual appreciation of the US dollar against the rupee till the approval of the loan program by the executive board, Dr Waqar Masood said that the impact of further devaluation of the rupee in its exchange rate against the US dollar would be passed on to end electricity consumers.

Dr Khaqan Najeeb, a former adviser to the finance ministry, said, “The IMF deals with Pakistan as a state and previously also caretaker setups dealt with the Fund and signed loan programmes which were later honored by incoming governments and the same can happen now and the ongoing programme can continue in the caretaker government if it is installed.”

The three economists agreed that it was the country’s issue to ensure political stability on a sustainable basis and run itself efficiently by taking reforms, not the issue of the IMF or other foreign countries.

They said the country’s reserves had tumbled to $9.3 billion after using the latest flows of $2.3 billion from China; the US dollar in the inter-bank stood at Rs226, and the sitting regime had to arrange for $4 billion in external financing in July under the staff-level agreement amid escalating political turmoil.

After the staff-level agreement, the stock exchange market received a good signal but by-elections in Punjab on 20 provincial seats on July 17 caused jitters in the market, and then the US dollar started rising steeply and it seems it may not be contained until the restoration of the IFM programme. The present government took a hard decision of withdrawing subsidies given by the ex-PM Imran Khan in POL prices and electricity from March 1 till June 30, 2022. The coalition government increased the power tariff by Rs7.91 in phases from July 1, to qualify for the staff-level agreement with the IMF. The government is yet to increase the price for SNGPL by 45pc and for SSGPL by 44pc.

Political pundits say the “harsh” decisions taken by the coalition government have left it unpopular in the country. And it has paid the price in the shape of a defeat in recent by-polls. Now there is news that the establishment has decided to go for soft intervention between the government and PTI leadership for holding elections in October.

However, Dr Nadeemul Haq says that withdrawing subsidies in POL prices and increasing the electricity tariff were not harsh decisions. He said that the contingent liabilities of the country had increased to somewhere between Rs7-8 trillion. “The government needs to make a hard decision of expelling government employees from loss-making public sector entities. The government has rewarded officials by increasing the executive allowance up to 150pc, who are responsible for increasing the contingent liabilities in the power sector, food commodities, Pakistan Railways, oil, and gas sector and PIA and Steel Mills,” he maintained.

Dr Khaqan Najeeb said that after the staff-level agreement, $1.17 billion would be released for Pakistan subject to the final endorsement by the IMF board and then inflows from China, KSA, UAE, and IFIs would start pouring in. “In a market-based exchange rate in Pakistan, the value of the rupee is highly influenced by trade statistics, uncertainties in markets and news,” he said. He noted that the trade deficit was $4.9 billion in June while petroleum products payments in May and June together remained elevated at about $6.2 billion and as some of LCs (Letters of Credit) from the past two months finalised in July and banks needed to cover their positions, it put pressure in the interbank market on the demand side.