Good news or bad?

For the masses, does not make much difference whether or not the government goes ahead with the IMF loan programme


June 19, 2021

Finance Minister Shaukat Tarin has ruled out withdrawing from the IMF loan programme. Whether it is good news or bad is indeed difficult to say. Abiding by the IMF conditions to keep the bailout deal intact means higher power tariff, more expensive petroleum products, and additional tax on income. On the contrary, quitting the deal would leave a big fiscal hole in the total receipts that the federal government expects during the coming fiscal year. And this gap can be best bridged by adding to the financial burden on the masses. So at least for the masses, it does not make much difference whether or not the government goes ahead with the extended fund facility.

In a testimony before the Senate Standing Committee on Finance on Wednesday, Tarin made it clear that “it is not possible [for the government] to get out of the IMF programme at this time”, in a way emphasising the need for the IMF dollars “at this time” and indicating that the bitter pill of the tough IMF conditions will have to be swallowed. And early signs of the government’s commitment towards the loan programme have already emerged in the shape of an increase in the prices of petroleum products on June 15. More such raises are to happen if Pakistan is to bear with the IMF programme because one of the conditions is to raise Rs610 billion through petroleum development levy.

Not just that, the federal government has also to raise the power tariff – by Rs5.36 per unit, according to media reports – in order to tackle the galloping circular debt which is set to cross Rs2.6 trillion by the end of the ongoing fiscal year. Besides, in order to avail of the next IMF loan tranche, the government is to raise Rs150 billion in additional income tax. All this is on top of the huge increase in the gas tariff made in the previous fiscal years. The most crippling of the Fund’s conditions – having been met by the government at the start of the loan programme – had been a progressive rise in the SBP policy rate to 13.25% that had a direct bearing on the fiscal deficit; as well as a free floating exchange rate that saw the dollar venturing into the highs never witnessed earlier, significantly adding to the inflationary pressure.

How could then the incumbent finance minister be happy with the way the loan programme was negotiated by his predecessors? He told the Senate committee during his Wednesday’s appearance that “this time around, the IMF was not friendly with us and the programme was front-loaded and tough” instead of being evenly spread across its 39-month span. Since the signing of the IMF loan deal in July 2019, Pakistan has secured $1.94 billion from a total of $6 billion – through an upfront release of about $991 million at the time of the agreement signing as well as the first tranche of $452 million in December 2019 and a second one of $500 million in March 2021. The amount secured makes up a third of the total funds committed under the deal.

So while at stake is nearly $4 billion more, the cost to be paid mainly by the masses is no small. It’s pretty evident now that the conditions imposed by the Fund are harsh enough to affect the implementation capacity of the reform measures themselves, suggested under the bailout programme. It is also in the Fund’s own interest to devise a workable path of economic reforms so as to enable a country to increase its debt repayment capacity. In our case, the reform measures forced upon by the IMF are getting increasingly difficult for our people to put up with.

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