AS was widely expected, Pakistan and the International Monetary Fund (IMF) have signed a staff level agreement for the release of a $700 million tranche under the $3 billion Standby Agreement (SBA) programme. The understanding came after the first review of a short-term loan deal concluded by the previous government of Shehbaz Sharif and a smooth sailing was expected as both the previous and the incumbent governments implemented almost all conditions for the purpose.
The agreement, which is subject to approval by the IMF Board, augurs well as it conveys to the relevant circles an assurance that Pakistan was pursuing fiscal and economic policies as per satisfaction of the lenders. Apart from the immediate release of $700 million, it would also open up prospects for timely disbursement of funds from other bilateral and multilateral sources. In a statement issued after two weeks of talks, the IMF said the agreement supported Pakistan’s commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate and pursue state-owned enterprise and governance reforms to attract investment and support job creation while continuing to strengthen social assistance. It noted that anchored by the stabilization policies under the bailout package, a nascent recovery was underway, buoyed by international partners’ support and signs of improved confidence. The steadfast execution of the current fiscal year’s budget, continued adjustment of energy prices and renewed flows into the foreign exchange market have lessened fiscal and external pressures. The two sides believed that the inflation, which is a fundamental concern of the people of Pakistan, would come down in coming months but the terms dictated by the IMF and conditions accepted by Pakistan speak otherwise. Difficult days are ahead for the general public as the agreement underlined that the foreign exchange should not be managed through artificial means and asked for reducing the yawning fiscal deficit by achieving Rs 9.415 trillion tax revenue target, reducing expenditure and hiking both electricity and gas tariffs in months to come. All this means the addition of more burden of taxes and tariffs on people, which would surely intensify the inflationary pressure in months to come. The situation was easing out as the government took administrative measures against illegal practices of the currency market resulting in stabilization of the rupee. However, there are already indications that the country has succumbed to the pressure of the IMF not to touch manipulators as the rupee is shedding its value once again on an almost daily basis. On the face of it, the IMF is suggesting to the government to return to a market-based exchange rate but in practice it is demanding a free for all atmosphere for artificial appreciation of the dollar. We have also been emphasizing in these columns that both the electricity and gas tariffs in Pakistan are among the highest in the world and it would be unfair to raise them further to compensate for line losses, theft, exploitative payments being made to IPPs and corruption in procurement of fuel. The deal also speaks about cost-reducing reforms in the energy sector which is the need of the hour and one hopes genuine and tangible measures would be taken to achieve this target including promotion of solar energy, replacement of obsolete technology and equipment and revision of agreements with IPPs. The latest agreement also requires the government to pursue state-owned enterprise and governance reforms to attract investment and support job creation while continuing to strengthen social assistance. In line with this, an SOEs policy has been evolved envisaging that the government would retain strategic SOEs but phase out non-strategic entities. Under the draft policy, the government will not set up any new SOE in future unless required for strategic reasons or under an agreement with any country and gradually off-load the majority of the existing lot of 200 entities mostly operating in losses. It is indeed a great tragedy that instead of managing institutions professionally and commercially, we are resorting to the easiest method of getting rid of them at all costs. Most of the SOEs have the potential to become viable and profitable provided the government stops interfering in their working, desists from the tendency of appointing blue-eyed people at heft perks and privileges as their CEOs and Board members and also there is no pressure on them to induct unnecessary manpower. To sum up, as things stand today, the IMF deal is a boon for the government as it would get some fiscal respite but it could prove to be a bane for the people of Pakistan.
