New IMF deal
The government of Shehbaz Sharif faces a Hobson’s choice. It is in a tough discussion with the IMF, as it struggles to prepare for a debut budget, and that too within weeks after assuming power. While the state of the economy is in doldrums, there aren’t many choices at hand. And the biggest problem is that the international lender is annoyed as its understanding with the previous government had gone off the track because the latter opted for a mass subsidy package under public pressure. This led to the rupture of a $6 billion fund facility. Thus, the new dispensation has to walk a tightrope as it expects the donor to funnel it with the much-desired cash tranche, and at the same time see to it that it doesn’t lead to reprisal from the masses. But the good news is that a delicate comprehension has been reached and the IMF has reportedly agreed to extend the current programme for a year, along with an additional succour of $2 billion. It will surely usher in the much-needed breathing space, but surely at the cost of slashing a lot in the pro-public context.
The new compassion, nevertheless, has some hard strings attached to it. The foremost demand is to do away with subsidies on energy. Under the relief announced by Imran Khan’s government in February, the exchequer was absorbing Rs21 per litre subsidy on petrol and Rs51.54 per litre on diesel. It was a proposed Rs260 billion subsidy to last till June 2022, and it also included Rs5 cut on per unit of electricity. This will have to be rolled back because the IMF has made it a pivot to re-negotiate the loan facility for another 12 months. PM Shehbaz will have to muster courage to deal with this piece of implementation at home, and that too at a time when political stakes are down. But the same is indispensable if the budgetary gap has to be covered, and come up with significant allocations in the developmental sphere.
A lot of behind the curtain window-dressing would be needed to soften the stringent terms as the respective delegates meet to iron out the new budget’s salient features. What is more painful is the new estimated deficit of Rs1.3 trillion by the end of June. All this makes up for a contested statistical battle and a tricky balancing act to keep everyone happy.
Published in The Express Tribune, April 26th, 2022.
Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.