All is not well between the government and the IMF panel as virtual talks have been unable to pan out anything substantial ahead of Finance Minister Shaukat Tarin’s meeting with the international donor’s chief scheduled next week. The technical level discussions between the two sides are still trying to come up with a consensual ‘give and take’ agreement to revive the $6 billion IMF programme.
According to media reports at the time of writing, on the IMF’s request the government has decided to take back the sales tax exemption in order to qualify for the next loan tranche of $1 billion. But it has asked for its implementation in March next year to lessen the burden on the salaried class. It must be noted that the withdrawal of the exemption was considered despite the fact that the FBR had positioned itself to achieve the annual target of Rs5.829 trillion. The IMF, however, considers it unsatisfactory, which would inevitably put the salaried class in a tough position at a time when inflation rate in the country is reaching a record level of around nine per cent.
What is worse is that the IMF have also asked the government to increase electricity tariff as it finds the ruling PTI’s power sector circular debt management plan ‘un-bankable’. The average consumer is in for a rude awakening as they would be forced to live under or just above the ‘poverty line’ with an already high oil and commodity prices. But the fact of the matter remains that the government can no longer delay the resumption of the IMF programme if it wants to sustain a growth rate of over three per cent. It is then fair to say that the majority of Pakistanis are at a lose-lose situation.
It must be noted that in a recent World Bank report Pakistan’s projected growth rate for the current fiscal year was the second lowest in South Asia at a 3.4 per cent, showing a downward trajectory from last years 3.9 per cent. The projection is based on the volatile situation in Afghanistan, a surmounting current account deficit and spiraling circular debt. While covid-19 related pressure on the economy has subsided, unless macroeconomic stability is sustained along with fiscal and monetary tightening, Pakistan will be unable to get out of the low-growth mould. One of the ways to stimulate this growth is through the revival of the IMF programme. Policymakers need to tread with caution as there is little wiggle room.