The first round of ‘conversation’ between Pakistan and the IMF over the former’s desire for a larger and lengthier programme appears to have ended, albeit some bumps remain visible. Both sides are thought to have reached an agreement on the reform measures that Islamabad must put in the next fiscal year’s budget and get approved by parliament before signing a new loan arrangement.
According to a report in this paper, a government official stated that the IMF mission is leaving the country without announcing a formal staff-level agreement because the “Fund wants a stamp of approval from parliament for the reforms and policy actions [to be implemented as ‘prior actions’ for the new programme] given the unpredictable politicalThis is not a new situation in Pakistan, and it is not surprising given the country’s ongoing political turmoil. The IMF recently warned that heightened political uncertainty and the rise of social tensions could jeopardise economic stability.
“The downside risks remain extremely substantial. While the new government has stated that it intends to continue the [Stand-by Arrangement’s] policies, political uncertainty remains high,” the IMF stated in its staff report following the completion of the second and final evaluation of the $3 billion SBA. It further stated that “the resurgence in social tensions reflecting the complex political scene and high cost of living could weigh on policy and reform implementation” .Despite fears that the political climate may impede parliamentary adoption of the new budget, the IMF has expressed confidence in the current political leadership.
“The return of the outgoing government to office following the elections signals a sustained commitment to the reform agenda agreed upon during the SBA. This not only increases the chance of reform continuation, but also ensures political stability over the next five years. The present coalition government is made of nearly entirely of the same political parties, who, despite the high political cost, carried out all of the steps pledged to under the [Extended Fund Facility] programme and authorised all previous actions under the SBA,” it stated.As a result, the Fund expects to close a fresh loan by early July at the latest. However, a new arrangement is the least of the average person’s concerns. The main concern for most people is the increased financial weight in the form of new levies — such as a hike in the petroleum levy, an increase in indirect taxes, more payroll taxes — and higher energy prices that they will have to face as part of the new loan. According to the just finished interaction with the IMF mission, the next phase of economic stabilisation would be extremely difficult for the majority of the population.