PROUDLY announcing that the Government has settled all matters with the International Monetary Fund (IMF) and there was no confusion on anything, Finance Minister Ishaq Dar made public the measures that the authorities would take in the next few days to pave the way for the ultimate signing of the staff level agreement with the IMF. The announcement surely clears doubts about the outcome of the latest round of talks with the Fund as its mission departed Pakistan without signing of the accord but the tsunami of price-hike that would unfold with the introduction of these measures sent cold shivers down the spines of masses, who are already crying under the burden of record inflation.
The satisfaction of the Government is understandable as an ultimate accord with the IMF would help evade a default that looms large because of the pretty precarious foreign exchange position of the country. The economic team of the Government, led by Finance Minister Ishaq Dar, is working hard to manage things during this difficult time and it tried its best to safeguard interests of the people during talks with the IMF. However, ground realities made their job tough and they had to concede to the bitter conditions for the sake of the country. Under the roadmap that Dar announced on Friday, the government would promptly introduce a mini-budget to generate Rs170 billion additional revenues in four months (about Rs510bn on annualized basis) and reform the power and gas sectors including through withdrawal of unbudgeted subsidies and tariff increases to stop flow of circular debt as prior actions agreed with the International Monetary Fund (IMF) to secure early disbursement of about $1.2bn tranche. He also told newsmen that the Government has received from the IMF the draft Memorandum of Economic & Fiscal Policies (MEFP) that the government would go through this weekend and begin virtual meetings on it from Monday to take the process forward.
Contrary to the oft-repeated commitment of the Government leaders not to put more burden on the common man, the terms agreed with the IMF include the one to hike the GST by one percent across the board, which would mean an increase in prices of all goods and services and its impact can be judged by the fact that it would bring Rs. 50 to 55 billion in the remaining four months of the current financial year. As if this was not enough, the Government, as per agreement with the IMF, has also announced to impose several additional taxes and hikes in the power tariff, which would not only make life of the consumers miserable but also slow down the economic and commercial activities. The process kick-started as the Economic Coordination Committee of the Cabinet (ECC) decided Friday evening imposition of a special financing surcharge of Rs3.39 per unit in average power tariff, in addition to quarterly tariff adjustments of up to Rs3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs4 per unit for about three months.
Apart from this, it also approved discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1. Gas tariff would also go up by 25 to 30% on average in the hope of reducing circular debt in the gas sector. Unfortunately, the PSDP would be slashed further while allocations for BISP have been raised from Rs. 360 billion to 400 billion for the current fiscal year. Separately, in a statement on Friday, Moody’s Investors Service said revenue-raising measures will likely be among prior actions that the IMF requires before releasing the next tranche of financing to Pakistan.
“Pakistan’s government liquidity and external vulnerability risks are elevated, and there remain considerable risks around Pakistan’s ability to secure required financing to fully meet its needs for the next few years,” it added. However, contrary to this, the Finance Minister expects signing of an accord and release of the next tranche by the IMF would clear the way for rollover of credit by friendly countries besides more inflows from bilateral and multilateral creditors. All this shows, the country would not be out of the economic mess in the foreseeable future even after accepting tough conditions of the IMF and this grave situation calls for a national consensus on how to address the economic malaise and reduce dependence on the begging bowl.
