Plan B on economy?

The government has taken steps that hint at its diminishing interest in clinching a staff-level agreement with the IMF

While uncertainty persists as to the revival of the $6.5 billion IMF loan programme, the government has taken steps that hint at its diminishing interest in clinching a staff-level agreement with the global lender. With pressure mounting on his government due to skyrocketing inflation — currently standing at an all-time high of 46.65% — Prime Minister Shehbaz Sharif has announced a string of measures in a bid to salvage some political capital. These measures include a cross-subsidy on petrol estimated to cost Rs25 billion; Rs73 billion subsidy on wheat flour to provide for free distribution of the commodity among low-income families; and a Rs150 billion worth of youth programme featuring 15 mega initiatives that include opportunities of education, skill development and employment

Quite understandably, the government’s initiatives, especially the petrol subsidy plan, have drawn concerns from the IMF whose resident representative in Pakistan says that the government had not consulted the Fund over the fuel pricing scheme, and that it needs to be agreed before a deal is finalised. The Fund is also insisting on written guarantees from Pakistan’s friendly countries to bridge the external financing gap — of around $6 billion — for the loan deal to culminate.

And while assurances from friendly countries were still awaited, the government rather violated the IMF conditions through the aforementioned initiatives — thereby putting a potential bailout deal in peril. With the central bank holding just around $4.6 billion worth of forex reserves and the government needing $3 billion in the next three months to settle foreign obligations, one wonders whether the government has a plan B to avert a financial default. Well, if Miftah Ismail, the discarded foreign minister, is to be believed, there can be none “as the IMF is the lender of last resort: when nothing works, IMF is the only go-to option”. Worryingly though, even this last remaining option is not working as a financial default stares us right in the face.

Published in The Express Tribune, March 27^th , 2023.

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