Prolonged caretaker setup due to census approval can put IMF program at risk

Picture source - Reuters
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After the approval of the 7th Census, the risks associated with the $3 billion standby management program from the IMF will suddenly increase manifold in the context of the extension of the tenure of the caretaker government.

After the census, the Election Commission of Pakistan (ECP) is going to start efforts regarding new constituencies and machines (voting). After the release of the first digital population statistics official gazette, the election phase can once again exceed the limit of three months because only the delimitation exercise needs a period of four months, while after that another two months are needed to complete the election process.

In the current situation, the supervisory setup can be extended to six months to complete the process of political transition. At the same time, the Cabinet Committee on Power (CCOE) has also approved a revised management plan for circular debt, which will be shared with the IMF after obtaining the approval of the federal cabinet.

Under the revised plan of arranged circular loans, it has been planned that the arranged tariffs and layouts will be recovered from the consumers on time by increasing the basic premium; there will be no target less subsidy for any sector.

When contacted, a key government official, when asked if the structured circular loan was to be shared with the IMF by the end of July 2023, said they had not left out any important issues and would be shared soon.

Meanwhile, the revised circular debt approved by the Cabinet Committee on Energy will be shared with the IMF, it has been written that it will be adjusted in quarterly tariffs and fuel prices, now there will be no subsidy without target for any sector.

When a senior government official was asked about this, he said that the CCOE has approved it and after the approval of the Cabinet, it will be shared with the IMF. When asked if the plan was to be shared with the IMF in July 2023, the official replied that no major deadline was missed and would be shared soon.

It remains to be seen how the IMF responds because it may first object to targets and then its implementation to see if it can limit the growing circular debt.

On the IMF front, when the SBA program was negotiated, it was agreed that it would be implemented in three different governments; the first installment of $1.2 billion has already been released during the tenure of the PDM government.

It was also decided to complete the first review on the first quarter and the IMF is going to send its first mission to Pakistan in the third week of October in this regard. The IMF board will then approve the second tranche of $700 million in December 2023.

It was also decided that the second review would be completed in February 2024 and the programme would be completed by March-April 2024. Now, with the possibility of extending the supervisory setup, all structural benchmarks and performance standards will be on the shoulders of the incoming caretaker government, which will strictly monitor all the important goals of the IMF mission.

The first and biggest target will be to be achieved by the end of September, in which the foreign exchange reserves in the State Bank of Pakistan will have to be increased to an extent. The State Bank of Pakistan (SBP) will keep the exchange rate within a certain range and that too in such a way that the IMF should not differ by large margins in the exchange rate of foreign exchange in the interbank and open market already.