The IMF’s response to Shaukat Tarin’s call for review of the harsh conditions attached to its $6 billion loan facility looks ambiguous. While the Fund has — through its Director Communications Gerry Rice — expressed readiness to “support Pakistan [to] navigate the difficult situation it is facing, [due to] the Covid crisis”, it is only willing to do so “when the time comes for the sixth review” sometime in June. The IMF’s readiness to help does look like a diplomatic way of saying no, given the fact that Pakistan is bound to meet the tough IMF conditions in the budget 2021-22 which is planned to be unveiled on June 11 and preparations for which are already ongoing, and the sixth IMF review is unlikely to come before that. The situation will, however, be clear in some time from now.
In March this year, the government had secured a $500 million tranche from the IMF on successful completion of third, fourth and fifth reviews of the loan facility, taking the total amount received from the Fund to $1.94 billion — a third of the total bailout package. However, the latest $500 million tranche was only released after the government had agreed to 1) generate Rs700 billion worth of additional GST and income tax in the coming budget; 2) raise Rs900 billion by making a 34%, or Rs5.36 per unit, raise in the power tariff; and 3) withdraw about 36 tax exemptions and streamline other corporate tax exemptions with a Rs140 billion financial impact. In addition, the government also allowed greater autonomy to the SBP over price control by adopting exchange rate and monetary policy without the government’s interventions.
Meeting the commitments made to the IMF would add to the common man’s burden that is already unbearable. An increase in the amount of taxes and the power tariff will hit the common man directly. Besides a 34% higher power tariff will also increase the cost of production, thereby causing the inflation to rise further. Realising this, Tarin had, soon after assuming charge as finance minister last month, made it clear to the IMF that Pakistan was in no position to raise the power tariff or taxes. In other words, Tarin wants the loan deal renegotiated. However, so far from the IMF it looks like ‘take it or leave it’.
Published in The Express Tribune, May 9th, 2021.