IMF and the politico-economic challenges

Low foreign exchange reserves and constrained revenue collection remain major challenges for the governments

IMF and the politico-economic challenges


here are indications finally that prospects of resolving Pakistan’s economic and political challenges are improving. The announcement of a date for general elections following a consultation between the Election Commission of Pakistan and the president following the Supreme Court’s directions, has put an end to speculation and controversy. Most political leaders are now gearing up for the upcoming general elections scheduled for February 8. Some have started forging alliances with like-minded parties.

The ECP and the caretaker governments have to deal with the reservations expressed by two major parties, the Pakistan Peoples Party and Pakistan Tehreek-i-Insaf, raising strong concerns about fairness of the upcoming elections. Both these parties are demanding what they call a level-playing field for all.

Key PTI leaders, including its chairman and vice-chairman, are in custody and facing various charges, including breach of the Official Secrets Act, 1923, incitement to violence on May 9, and irregularities in the management of Al-Qadir Trust. With top PTI leaders imprisoned and some key members distancing themselves from Imran Khan, speculation about a plan to sideline the PTI has been being aired by some political analysts and sections of the media. It has been suggested that this situation can result in Nawaz Sharif, the three time former prime minister, getting a shot at the office for a fourth term.

His party, the Pakistan Muslim League-Nawaz, has been complaining that with the exception of 2013 polls he has been kept out of elections for longer than two decades. His supporters also question the legitimacy of convictions in the Avenfield and Al-Azizia cases. They lament that despite the existence of video evidence about a judge who convicted their leader, the High Court has not set aside the judgment.

Meanwhile, his prison sentence has been suspended by the Punjab government; his absconder status has been reversed upon his appearance before the court and the Islamabad High Court has accepted his plea for reinstating appeals. However, the appeals have yet to be fixed for hearing.

The uncertainty resulting from a lack of trust among the political parties regarding fairness of the elections needs to be addressed. It is known that economic stability depends on political stability.

Despite these issues, Pakistan has witnessed some positive economic trends in the recent months. The government has made visible efforts to comply with the conditions set by the International Monetary Fund. Action against currency smugglers and those using alternative remittance systems have helped narrow the gap between the dollar prices in the open market and the interbank trade. Administrative efforts have helped maintain the 1.25 percent gap agreed with the IMF.

The Pakistan Stock Exchange has seen a significant upturn in recent weeks, boasting historic growth. The PSX 100 index has surpassed the 56,500 level, registering a remarkable 1,132-point gain. The index has shown consistent positive performance over the past weeks. It first reached a historic milestone by surging past the 55,000 mark, then continued the momentum and achieved a new record high of 55,391.37 points before closing at 53,123.04 points with a gain of 2,268.33 points, a 4.27 percent increase on a week-to-week basis.

Most analysts believe that the stock market surge reflects a positive development in talks between the caretaker government and the IMF. There have been reports that the global lender and the Federal Board of Revenue have reached an agreement to implement structural adjustments and agreed to introduce additional taxes on the real estate, agriculture and retail sectors. Pakistan has also made strides in reducing the current account deficit, which declined $8 million in September 2023 from $360 million over the same period the previous year.

The results of the recent census reveal that our population has surpassed 241 million. Our resources are insufficient to sustain this growing population. We must prioritise adoption of a corporate model for governance. 

Inflation, measured in terms of Consumer Price Indices, is down. The price indices review for the year, using 2015-16 as base year, has shown a decrease in general inflation from 31.4 percent in September 2023 to 26.9 percent in October 2023. On a month-on-month basis, inflation rose by approximately 1.1 percent in October 2023, compared to the 2.0 percent increase in September 2023, and 4.7 percent increase recorded in October 2022.

The figure shared for the urban inflation also shows an optimistic trend. It was recorded as 25.5 percent on year-on-year basis in October 2023 as compared to 29.7 percent in September 2023 and 24.6 percent in October 2022. However, month on month basis increase shows 1.1 percent in October 2023, compared to 1.7 percent in September 2023 and 4.5 percent in October 2022. The rural inflation was 28.9 percent in October 2023 as compared to 33.9 percent in September 2023 and 29.5 percent in October 2022.

On a month-on-month basis, the prices of several commodities rose in October. These included onions 38.71 percent, fresh vegetables 17.74 percent, fresh fruits 6.49 percent, eggs 6.05 percent, potatoes 3.72 percent, fish 3.00 percent, condiments and spices 2.87 percent, beans 1.51 percent and nimco 1.38 percent.

Prices of the following items declined: sugar 10.23 percent, pulse gram 3.71 percent, tomatoes 3.11 percent, mustard oil 2.33 percent, pulse moong 2.05 percent, gur 1.88 percent, wheat flour 1.87 percent, milk fresh 1.73 percent, tea 1.67 percent, wheat 1.66 percent, vegetable ghee 1.61 percent, besan 1.60 percent, pulse masoor 1.59 percent, cooking oil 1.54 percent, gram whole 0.88 percent, wheat products 0.79 percent, pulse mash 0.37 percent and chicken 0.13 percent.

Prices of the following non-food items rose in October 2023: electricity charges 8.29 percent, marriage hall charges 5.43 percent, accommodation services 4.50 percent, liquefied hydrocarbons 3.87 percent, drugs and medicines 3.72 percent, education 3.23 percent, doctor’s clinic fee 3.02 percent, woollen readymade garments 2.36 percent, therapeutic appliances and equipment’s 2.33 percent, electrical appliances for personal use 1.97 percent, furniture and furnishing 1.96 percent and woollen cloth 1.89 percent. A decline in prices was recorded for motor fuel 4.02 percent, transport services 1.56 percent and construction input items 0.97 percent.

There is a modest improvement in inflation according to the data. However, there is a long journey ahead before actual relief materialises. The progress will depend on the government’s commitment to undertake structural reforms and stop injection of funds into commercially operated state enterprises.

The IMF is asking for better governance and privatisation of loss-making state-owned enterprises. Media reports suggest that the government has agreed to operationalise a central monitoring unit and place Pakistan National Shipping Corporation, Pakistan Broadcasting Corporation and Post Office under it. The IMF has also asked for periodic reporting on the performance of SOEs, expected to be shared with the federal cabinet and made public by this month’s end. Overall, technical negotiations with the IMF appear to have been a success leading to the completion of the first review of the ongoing 9-month standby agreement.

The major causes of economic hardship remain low foreign exchange reserves and constrained revenue collection. The results of the recent census reveal that the population has surpassed 241 million. The resources are insufficient to sustain the growing population.

We must prioritise the adoption of a corporate model for governance. In this context, measures should be implemented not only to enhance our financial inclusion rating but also to centralise activities, fostering collaboration among institutions. Once implemented, these measures will cause a shrinking of the undocumented economy and mitigate trade-based money laundering as well as propel our tax collection to a satisfactory level.

Dr Ikramul Haq, an advocate of Supreme Court is adjunct faculty at Lahore University of Management Sciences

Abdul Rauf Shakoori is a corporate lawyer based in the USA

IMF and the politico-economic challenges