By Sardar Khan Niazi
IMF has approved the bailout program amid an unmanageable current account deficit, a significant decline in foreign exchange reserves, and a marked depreciation of the rupee.
At the same time, inflation has increased considerably, putting pressure, particularly on the more vulnerable. It shows the IMF fund does not promise any consolation to the masses.
Loose fiscal policy and a delayed monetary response to inflationary pressures combined with the international food and fuel price shocks led to a marked deterioration of the external position.
Although the funds arrive shoring up foreign exchange reserves and ensuring the availability of necessary imports, the state needs to do structural reforms.
As Pakistan was facing the threat of an economic failure, the IMF deal was crucial to stabilizing the financial situation. The latest tranche is part of a $6bn loan facility.
It left the government to negotiate the revival of the Fund program on much harder terms. It required taking unavoidably harsh economic measures prior to the IMF’s affirmation of approval. The resumption of the Fund arrangement may have given us some breather, but challenges are there.
In addition to the increase in the charges for petroleum products, the withdrawal of subsidies also took place. The government also had to generate extra billions of rupees in taxes. These actions mean a huge political cost for the ruling coalition.
While Pakistani authorities and the IMF staff mission had reached an understanding to resuscitate the held-up loan program in June, it took another two months for the IMF board of directors to give its approbation.
With the IMF’s official endorsement, Pakistan is likely to get monetary assistance from multilateral agencies such as the World Bank and some friendly countries. That is certainly good news for the government but tougher times are in store with the economy still in a crisis.
It will be a big challenge to make certain that economic stabilization goals are on track in the face of the monsoon tragedy that has affected plenty of people. The scale of the damage is far greater than seen in contemporary history.
A feeble economy cannot tolerate such huge damages. With millions of acres of crops vanished, the country may also confront severe food shortages in the coming months, deteriorating the mess. It will make it very tough for the government to lessen the rising inflation.
Under the present state of affairs, it would be a colossal challenge for the government to keep IMF demands on track.
There will be growing political pressure on the government both from the opposition and from within the ruling coalition itself to reestablish some of the subsidies, mainly on petroleum products and power tariffs that form the bigger part of the Fund’s stabilization program.
PTI leaders are at present protesting against the deal without taking into consideration the fact that the latest agreement is the continuation of the 2019 IMF program that took place under the Imran Khan government.
In fact, the former government’s decision to move away from the path undermined the economy. This was one of the reasons, why the IMF made its demands tougher.
With the economy on the edge, the government did not have any choice but to swallow the bitter pill. Definitely, the increase in oil prices and the removal of subsidies have brutally hit the people but they saved the country from complete economic collapse.
Although the IMF deal has given the country some breathing space but the challenges ahead are more intimidating. Pakistan may be feeling a little relaxed but it is not yet out of the woods. Deteriorating political unpredictability remains the biggest obstacle in the way of economic retrieval.