Deal and aftermath

A sigh of relief for the embattled coalition government as it got the deal done with the IMF. With the formal nod from its executive board on Monday, a much-desired tranche of $1.17 billion will make its way into coffers in Pakistan. This achievement has averted the risk of default though, it has come at a critical cost, and the nation will be reeling under its aftermath for a long time. The tête-à-tête that materialised this deal, after contentious undertaking, has seen prices of oil, gas and electricity shore to new heights, as the traditional cushion of subsidies stands withdrawn.

This is in the wake of a battered rupee which is on a losing streak against the dollar, and has lost around 35% of its fiat value. Moreover, with an instant blow of inflation at 44.5%, the economy is literally in dire straits. It is, however, hoped that the revival of donors’ confidence with the disbursement of the IMF tranche will lead to some easing in weeks and months to come. Apart from the Fund’s input, an additional $4 billion will pour in from other institutional lenders, as well as commercial banks, helping guide the trailing economy to a new direction.

Pakistan’s main ailments are its bulging current account deficit, enormous debtservicing and slumping exports that have almost stagnated its growth in a real developmental sense. It had compelled the financial gurus to tweak the budget twice in the last three months of this fiscal year. The country faces a primary deficit of Rs1.6 trillion, and the difference between revenues and expenditures is skyrocketing. This is why the new estimates envisage over Rs1.716 trillion (2.2% of GDP) of fiscal adjustment, mostly through taxation, including 10% super tax on 13 industries and personal income tax covering monthly incomes above Rs50,000 per month.

The toiling impact on the masses is too evident to be ignored, and it is high time inflation was checked and the rupee strengthened to make inroads towards stability. For the first time, a fixed tax regime for sectors like retailers, traders, jewellers, builders, restaurants, automobile and property dealers is testing the resilience of both the masses and the economy. As a bolt from the blue, the devastating floods will keep the economy on tenterhooks, as the entire developmental paradigm stands torpedoed.

Pakistan is estimating a loss of over $10 billion, as cash crops are washed away and more than 35 million people are in distress. Coupled with this is the pestering political instability and a changing regional environment, which has upped the ante for economic recovery. Pakistan is in dire need of inclusive growth, one that caters to human security, as well as doing away with the phenomenon of subsidies and protectionism. Opting for stringent austerity and underscoring on developmental projects through foreign investment and privatisation proceeds are indispensable measures.