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Wednesday, February 1, 2023
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EditorialIMF demands and the way forward

IMF demands and the way forward

Pakistan urgently requires a new tranche from the International Monetary Fund (IMF) as well as other ways to keep its international trade afloat and avoid default. Default has been a buzzword that refuses to leave the public conversation for some weeks. It appears that the Federal Finance Ministry, the Federal Board of Revenue, and other financial-related departments will have to work harder in the next two to three weeks to achieve the IMF’s objectives and targets.

According to reliable reports, the IMF has handed the lists of essential actions to the personnel dealing with the fund on behalf of the state and advised them that the implementation of all required measures will take two to three weeks. Performance within this timeframe could pave the path for the staff-level agreement to be implemented and a billion-dollar tranche to be released under the Extended Fund Facility. Revenue recovery includes revolving loans for energy and gas, among other things. The government’s objective in the current economic scenario may be to impose the least burden on the people, but independent economists suggest patchwork cannot be done to restore the IMF programme. Another round of talks between Finance Minister Ishaq Dar and IMF officials took place on Thursday, during which the minister assured the guests that the State Bank’s foreign exchange reserves, which had fallen to $6.11 billion, would be restored to appropriate levels by the end of this month or early next month, with the assistance of a friendly country. According to sources, the IMF has ordered Pakistan’s government to restrict cash flow in the energy sector, particularly electricity and gas, implement further taxation measures, and move toward structural reforms for the remainder of the fund’s programme. However, government sources are upbeat about the targets. However, it is encouraging to see the government’s increased engagement and attentiveness on this front.

The government, on the other hand, needs to extend its tax net and tax the industries that utilise political leverage to persuade authorities to reverse taxation initiatives. This cannot continue indefinitely, and the tendency must be ended once and for all. Former FBR chairman Shabbar Zaidi made unprecedented steps in this area, but within months, his wings were cut by the political backers of the tax evaders.

The government must study the State Bank’s annual report for fiscal year 2021-22, which notes that the inflation rate exceeded the estimate in fiscal year 2022, due to a mix of external and local causes. In 2022, inflation reached 12.2%, up from 8.9% the previous year. For the second year in a row, Pakistan’s economy achieved a real growth rate of around 6%; however, the economic development growth rate this fiscal year would be less than the announced aim of 3 to 4%. With the elimination of subsidies and the increase in fuel tax, the inflationary tendency will continue. Delays in the IMF program’s recovery and political instability exacerbated the country’s vulnerability by depleting foreign exchange reserves. As a result, the depreciation of the Pakistani rupee has increased inflationary pressures significantly. The country’s economic stability was jeopardised by the sharp rise in global commodity prices. This circumstance, in particular, resulted in a massive import bill in fiscal year 2022. As a result, the current account deficit reached a four-year high. On the other side, Federal Finance Minister Ishaq Dar has formed a committee to eliminate the gas sector’s Rs1.4 trillion revolving debt on the condition of the IMF. The committee’s report will be due in 10 days. There is no denying that political stability and a calm atmosphere are prerequisites for economic development and stability. In a country where there is political instability and law and order issues, there is no investment, and no investment necessarily undermines economic growth. For many years, Pakistan has been plagued by political insecurity. The conflict between political parties has produced an unpredictable environment in which investors are hesitant to invest. They always put their money in a safe place where the economy suffers when things are bad. Political unrest in Pakistan is having a severe impact on our economy. It carries an unreasonable load of outstanding debts, on which he must take out a loan to pay the interest. The abnormal disparity in imports and exports is growing the circulation imbalance. The unemployment rate is rising. A sizable proportion of the population appears to be forced to live below the poverty level. Industry, trade, and agriculture have reached their limits. The pace of progress has come to a halt as interest rates have risen, and inflation has become uncontrollable. The Federal Bureau of Statistics’ data also illustrate the scarcity and high cost of key commodities in the country.

There is a continuous bearish trend in the Pakistan stock market. Remittances and foreign exchange reserves are also continuously decreasing. So, in this context, the annual report of the State Bank for the year 2021-22 should be eye-catching for the government and related institutions and in the light of this, the government should formulate its financial policies. Such steps should be avoided which will increase the inflation in the country and make life difficult for the people. Recently, the government has banned the indiscriminate use of electricity in business centers, hotels and wedding halls as part of energy conservation, but this measure is not enough. The government should reduce the size of its cabinet, control non-productive expenditure and try to steer the economy by giving incentives to the industrial sector so that the economic condition of the country can improve and the people can also breathe easy. This can be possible only if there is political stability in the country, but the sad thing is that both the government and the opposition do not seem ready for it.

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