IMF programme revival mother of all solutions

Economy is in a shambles. Cracks are wide open on several fronts. Foundations are so weak that 12 to 15 months of political and economic uncertainty has wreaked havoc. Everyone in the pyramid has been jolted, to say the least.

Let’s take stock of last year and a half. Futile and irrational energy subsidies given by PTI, at a time when energy markets were embroiled in Russia-Ukraine war, was mistake number 1.

Mistake number 2 was dithering by PDM over undertaking reforms and letting fiscal year close at its worst. It seemed surreal that right decisions to reverse subsidy and increase petroleum development levy (PDL) to Rs30/litre were taken so late. Perhaps, PDM was seeking reassurances for the remaining tenure.

The third mistake was delaying IMF review and rhetoric against the global rating agency and lender of last resort. We must not take on unwarranted battles, especially if teetering at the edge of default. Yes, we didn’t default, but risks and probability were indeed high.

Mistake number 4 was letting the rupee slip to absurdly low levels – clearly the outcome of delayed decision-making – leading to an irreversible inflation count, and needing an equally appalling 21% interest rate that pushes companies to default, losses and unemployment.

Step by step, we have taken whatever steps we needed to restore IMF’s confidence. There is a reason why IMF is making us take all the tough decisions to be safe until June 23 and beyond. It’s crystal clear we will head back to IMF with new mandate and who knows what the terms will be then. Surely, borrowers won’t be choosers.

The coast from here needs to be cleared. The tug of war between parliament and Supreme Court needs to end. Who holds the ultimate power is absolutely unclear.

Tomorrow, decisions by SC can be upended by parliament and vice versa. We saw some drama a year ago at the time of no-confidence vote and now we are seeing round 2 with Punjab and K-P elections.

Revival of IMF’s bailout programme is mandatory and mother of all solutions. Once done, imports should be relaxed, especially for exports, import substituting and high revenue items.

Taxes on items for super-rich and rich can stay high but 1,500cc cars – once a middle-class shopping list – need to become affordable to enhance tax revenues and employment.

With only a few months left to the end of current term, certain political parties do not seem to be in election mode.

Maybe – hopefully not – there are certain agenda items left such as arrests, revenge, disqualification and re-qualification of certain political leaders to enter the arena. Otherwise, sky is clear blue with no signs of pouring elections.

Keeping inflation constant and rupee stable should be primary tasks of all stakeholders until new govt is elected. This will accelerate probability of interest rate cuts to bring back growth.

Major industrial groups, investors and foreign firms must be looking at how infighting within powerful groups has destroyed potential of the country.

People are underestimating the rush to immigration and urge to escape the country by educated masses. If that happens, our destiny will be similar to Argentina’s where a beautiful country and citizens were left leaderless and brain-drained itself to a better world and excelled globally.

We are proud of identity but disappointed with the country back home. This will be a sorry tale to tell the next generation.

Ruling elite will continue electoral success as poorer the masses the higher the status quo. Systemic cleansing is required.

The writer is an independent economic analyst

Published in The Express Tribune, May 1^st, 2023.

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