It may have been good news for Pakistan from a macroeconomic angle, but the resumption of talks for revival of the IMF loan programme must have set alarm bells ringing for the masses as well as the business community — both of whom bore a terrible brunt of the fiscal reforms imposed by the global lender before the Covid-19 outbreak led to the suspension of the bailout programme.
Pakistan entered the three-year $6 billion programme in June 2019. The incumbent government has received two tranches from the IMF — $991 million upfront payment in July 2019 and another one of $452 million in December 2019 — but it still has its second review pending. Early last year, the two sides had reached an agreement to pave the way for the disbursement of a $450 million tranche pending approval from the Fund’s executive board, but the same has yet to come.
But now, during a recent interview, SBP Governor Dr Reza Baqir has expressed the hope for “good news for the market and the world” that the program is being put back on track. The central bank chief says there is no disagreement on the ‘end goal’ between the two sides, and that Pakistan needs to increase its low tax-to-GDP ratio — something which implies that the disbursal of $450 million tranche is linked to an increase in the amount of taxes on the common man.
Actions taken as part of the IMF-supported reforms after the approval of the loan deal included adoption of the market-based exchange rate regime, increase in the charges of utilities, and raise in the SBP’s policy rate to as high as 13.25%. Meant to put the country on the path of economic statbilisation, these actions slowed down the economy and wreaked havoc with home budgets. With the talks all set to resume, the IMF must realise that the reform measures should not be harsh enough to affect the implementation capacity for the reforms themselves. By the way it is also in the IMF’s own interest that a feasible path of reform is followed under which can enable Pakistan to increase its debt repayment capacity.
Published in The Express Tribune, January 14th, 2021.
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