The cost of $500m tranche

Conditions accepted by govt for revival of the IMF loan programme are sure going to hit the masses like never before

So the coming federal budget is truly going be an IMF-dictated budget. The conditions accepted by the government for revival of the IMF loan programme are sure going to hit the masses as well as the business class like never before. Commitments to meet these conditions have helped the government secure IMF Executive Board’s nod for disbursement of $500 million IMF tranche. In return, the government has agreed to 1) generate more than Rs700 billion in additional revenues through general sales tax and income tax in the next budget; 2) raise another Rs900 billion by increasing power tariff by Rs5.36 per unit, or 34%, in phases over a period of 15 months or so; and 3) withdraw some 36 tax exemptions and streamline other corporate tax exemptions with a financial impact worth Rs140 billion.

In addition, the PTI-led government has also allowed greater autonomy to the State Bank of Pakistan over price control by adopting exchange rate and monetary policy without the government’s interventions – something unprecedented in the central bank’s history spanning 73 years. Under the agreement, SBP officials will be largely immune from investigation by NAB, FIA or any other investigation agency as they will not be able to probe them without prior approval from the SBP board of directors, headed by the central bank’s governor himself. Since the governments over the years have enjoyed de facto control over SBP operations, freeing it from political influence must be welcomed. However, the extent of the autonomy granted to the central bank is akin to making it subservient to the IMF.

While, on paper, an IMF programme is all about bringing economic stability through structural reforms, the conditionalites should not be harsh enough to affect the implementation capacity of the reforms themselves. The global lender should realise that it is also in its own interest to devise a workable path of economic reforms in order to enable a country to increase its debt repayment capacity. In Pakistan’s case however, the reform measures suggested – rather forced upon – by the IMF are getting more and more difficult for the common man to put up with.