Can IMF deal end our balance of payments crisis?

June 29 was not just significant for the holy festival of Eid-ul-Azha, it also brought along for Pakistanis a splash of cool feel amid fierce summer in the shape of a fresh short-term financing from the IMF under its Stand-by Arrangement (SBA).

Now instead of the Extended Fund Facility (EFF) programme that Pakistan entered in 2019, it is the nine-month SBA in the amount of SDR2,250 million (about $3 billion or 111 per cent of Pakistan’s IMF quota), which the IMF termed as the SBA “builds on” efforts under the EFF. This means obviously the IMF expects Pakistan to use this short-term financing as a basis for the progress of the programme that was supposed to expire on June 30.

The SBA provides short-term financial assistance to countries facing balance-of-payments problems. Pakistan is no exception. In fact the nuclear-powered nation has a long history of balance-of-payments crisis.

According to 2019 ADB report, in Pakistan, the balance-of-payments constrained growth rate is estimated at 3.8% based on 1980–2017 data and using long-term estimates of import and export income elasticities. The result is lower than previous estimates of balance-of-payments constrained growth in the literature, indicating that lower export performance weighed more on gross domestic product growth in the recent period.

In a similar manner, the IMF’s country wise data graph depicts alarming curves of Pakistan’s CAD from 1976 to 2022.

The chronology of Pakistan’s current account deficit (CAD) presents depressing image of the country’s economy. CAD clocked in at $0.4 billion in December 2022, down massively from $1.9 billion in the same month of the previous year, data released by the State Bank of Pakistan (SBP) shows. It soared from $2.8 billion in FY2021 to $17.3 billion. The SBP data also displays that Pakistan’s CAD marooned at $4,449 million during FY20, $13,434 million during FY19, $19,195 million during FY18, $12,621 million during FY17 and $4,867 million during FY16.

Though, this staff level agreement for short term financing has drawn an end to the monotonous verbiage about Pakistan’s default, a great amount of despair is found in ordinary people who hardly understand the complexities of the IMF programme or the budgetary structure.

Around the world, inflation and its negativity has been a matter of great concern. So it has taken Pakistan with a spiralling wave. Every citizen generally hailing from the high to lowest income level is struggling to survive the financial stress in one way or other. There can never be such a strong unanimity among people other than agreeing to bring down the commodity prices.

In the context of an unparalleled economic crisis, how the finance minister would design the FY2024 budget was a matter of both curiosity and worry for mainstream opposition, economists, businessmen and analysts. But the common man remained almost oblivious other than listening to the experts detailing the fors and againsts of the budget 2023-24 which is stated to be the government’s efforts to salvage of the ailing economy.

Therefore, having minimum or no knowledge about the budget structure, ordinary household remained struggling to cope with the high commodity prices with meagre and static income. But now that both budget and the IMF episode has been settled, there is not much in it to make them feel better in terms of their livelihood and cost of running kitchen.

In this string of events, it is crystal clear that Pakistan has lost the comfort zone of having macroeconomic stability from strong growth and the benefit of somehow low international prices. Prime Minister Shehbaz Sharif and Finance Minister Ishaq Dar must have juggled a lot with many alien things around to get a better matrix of loss and gain and income-expenditure to get the short-term financing under the SBA. But what is so good about it? Will this loan facility bring solvency to those household who have been conventionally reliant on daily wages and ever growing inflation?

According to a recent UN report released in early January this year, Pakistan remains a lower-middle income country and will continue to be vulnerable to fluctuating energy prices.

However, slower pace of economic growth and high commodity prices have spiralled ordinary citizen’s cost of living unthinkably, putting them in extreme financial constraint.

Piecing together Pakistan’s inflation situation over the decade, snapshot studies based on daily needs present an overall gloomy financial condition of people from lower income group. When the prices of essential food commodities soar, there is hardly any reason for them to rejoice any political or crucial events like an IMF arrangement. I would like to sketch to model cases from a week of snapshot study in just a brief note. One, before returning to homes, for years, daily wagers used to buy one kilogram vegetables comprising few carrots, an eggplant, couple of potatoes and a pinch of greens as they cannot afford buying every commodity separately. Now the prices discourage them from buying a whole kilogram of the vegetable mix. Now they ask for half a kilogram instead, a vegetable vendor summarised his 35 years of experience.

Second, in a similar experience, a poultry shop owner says that earlier people from low income group used to buy one kilogram chicken at least in a week. But the prices have jumped well above their reach. They now ask for only half a kilogram of the bird meat and that too after at least 10-15 days or more.

Now in this new economic scene, with the IMF’s rigid conditionality synchronised with upcoming election manifestos, it is an infrequent responsibility of the incumbent government to oxygenate the suffocating people.

I wish this time around Shehbaz Sharif and Ishaq Dar stick to their resolve to give the poor relief. They take measures to bring down commodity prices and save the least privileged Pakistanis from starvation.

Published in The Express Tribune, July 12^th, 2023.

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