Standby injection

 

Succour has reached the coffers. The IMF, after threadbare discussions and taking into account the plummeting health of the economy, has disbursed $1.2 billion as a Standby tranche. A lot of politico-economic guarantees were embedded in realising the deal, apart from assuring the lender that Pakistan’s budget organogram would be tweaked on necessary lines. The Fund’s Executive Board was generous enough to approve a $3 billion bailout programme as part of the 9^th Extended Fund Facility for Pakistan hoping that it will ease the country’s financial crisis. The disbursement as well as the new understanding, however, could not have been possible without the magnanimity of Saudi Arabia and the UAE, which pitched in with $2 billion and $1 billion, respectively. The Washington-based donor’s nod to vet the standby-arrangement was essential to sail through the rough crest and trough of the country’s dilapidated balance of payments.

Pakistan literally is in for another programme with the Fund. Notwithstanding the woes to the contrary, the eroding foreign exchange reserves and the accumulating debt burden indicate a sorry state of affairs. Until and unless the entire paradigm of sustenance is changed, Pakistan’s economy will be on the rocks. This is why the IMF has come up with a wish-list, and realising it in good-faith will be Hobson’s choice. The salient features of what is required are: fiscal adjustment in the FY24 budget to ensure debt sustainability while protecting critical social spending; a market-determined exchange rate; a tight monetary policy aimed at disinflation; and slapping of new tariffs in the energy sector. These steps will surely incur domestic unrest as people are already reeling under a miserable cost of living, sans any opportunities for social mobility.

Some critical insertions are needed to bounce back. To count a few are generation of wealth, expanding small and medium entrepreneurs’ base, winning the confidence of expatriates and last but not least a long-term strategy with assured political stability.

Published in The Express Tribune, July 14^th, 2023.

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