After a smooth first review of the $3 billion short-term bailout package, the IMF has, as expected, announced a staff-level agreement with Pakistan. This news has cheered up the rupee and supported the already thriving stock market to a new high.
The objectives and conditions of the programme are still the same as they were when the bridge facility was approved in July. Additionally, the IMF has pushed for increased openness in the way the Sovereign Wealth Fund’s assets are managed and the Special Investment Facilitation Council operates. The lender’s concern, evident in the new demand, is that the recently established body, which has the authority to overrule any policy or decision and suggest new legislation to enable the promised investments from the Middle East, might distort the nation’s investment regime and establish a preferred investor group.
A statement released by the IMF mission at the conclusion of its visit praised the authorities’ efforts and the improvements in the macroeconomic fundamentals under the Stand-by Arrangement (SBA). It contended that a tentative recovery is in progress, supported by the support of international partners and indications of increased confidence and anchored by the stabilisation policies under the SBA. Meanwhile, the Fund has cautioned Pakistan that it could be vulnerable to “significant external risks, including the intensification of geopolitical tensions (in Gaza), resurgent commodity prices, and the further tightening of global financial conditions” that could affect its economy. It continues by saying that committed foreign funds must continue to be disbursed on time in order to support policy and reform initiatives.
If the current bull market takeover and currency appreciation stemming from army-backed administrative action against illegal dollar trade are any indication, there’s no doubt that the feel-good factor has returned in recent weeks. Though very slowly, headline inflation is also declining. Reforms in energy pricing as well as a few modest advancements in other domains are promising. However, the current state of “macroeconomic stability” is flimsy and superficial, and it may collapse with a single tiny shock. The fundamental state of the economy is still under pressure.
The government may have been able to accomplish its fiscal goals and control the current account deficit with the help of the import restrictions and reductions in public development spending. However, it has stifled economic activity and demand, resulted in job losses, and reduced the incomes of lower- to moderate-income individuals.
The IMF and others have highlighted the need to consolidate the recent gains made under the SBA over the next few months, despite the costs to the people. However, a larger, longer-term IMF programme and the return of a democratically elected government with a crediblea longer-term IMF programme and the resurgence of a legitimately elected government empowered by the people to carry out its necessary duties.