The cost of sixth tranche

IMF and govt, like the previous ones, remain focused on bleeding poor, middle-class families dry

The IMF has approved the long-delayed $1 billion tranche of its $6 billion loan programme, bringing much relief to government negotiators and apprehensions of further financial pain for the average Pakistani. The release of this sixth tranche means that Pakistan has been provided with about half of the original loan amount.

A positive side development, however, was the approval of Pakistan’s request for a waiver of applicability and nonobservance of performance criteria, meaning that Pakistan will be given some leeway with regard to the tough reforms included as loan conditions. This will be critical to lessening the impact of the international financial agency’s conditions, which currently require even more increases in taxes and electricity tariffs, among other reforms.

Already, the mini-budget — which was almost entirely necessitated by the IMF’s loan conditions — has taken its toll on the people and raised questions over the government’s ability to weather the storm of public discontent. However, it does appear that, by approving the loan, the international lender is expressing satisfaction with Pakistan’s reforms so far, and more significantly, the implementation of those reforms, including increased autonomy for the central bank, new taxes, and withdrawal of several subsidies and tax exemptions.

In a surprise for some observers, the IMF has predicted Pakistan’s growth rate for the current fiscal year to be around 4%, which is significantly higher than the World Bank’s most recent 3.4% estimate but still lower than the government’s own 4.8% prediction. However, the IMF has also warned that inflation is “expected to pick up this year before gradually slowing down” — something that does not bode well for millions of common Pakistanis who are struggling to make ends meet. Recent studies have universally shown that poverty has been going up in recent years, meaning that further inflation could seriously threaten the health and well-being of a large share of the population.

That also makes us question who at the IMF came to the summary that “recent economic and financial policy efforts...were appropriate to safeguard macroeconomic stability and debt sustainability.” There are also many adjectives that may be applied to Pakistan’s economy at this time, but stable and sustainable are not among them. The IMF also appeared to blame inflation or “domestic price pressures” almost entirely on the current account deficit, ignoring the loss of subsidies on several essential items that it had pushed for.

Anyone on the ground will tell you there are better ways to address the revenue gap, including cutting non-development expenditure and targeting the ultra-rich for higher tax collection, but these never seem to come up. Instead of a reasonable wealth tax to force a handful of billionaires to help build the country that made them rich, the IMF as well as the incumbent government, like the previous ones, remain laser-focused on bleeding poor and middle-class families dry.

Published in The Express Tribune, February 6^th, 2022.

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