Financial troubles

Published October 18, 2021

THE PTI administration has found itself left with no option but to go back to the IMF with a request for the resumption of the $6bn loan programme stalled since March.

With the 2023 elections in sight, the government was reluctant to introduce the unpopular measures suggested by the global lender. The strict programme conditions, especially the ones related to electricity pricing and tax reforms, were also seen as major impediments to the government’s plans to grow a shrinking economy in time for the next elections.

The IMF’s ‘open and constructive discussions’ with Pakistan’s finance managers including Shaukat Tarin seem to be yielding the ‘desired results’. The sixth review of the programme is expected to be over soon with the IMF releasing two outstanding tranches amounting to $1bn once it completes the validation of the data on power and gas tariffs and tax collection shared by Pakistan.

Read more: Technical-level talks with IMF conclude

What Islamabad has agreed to give in return will be fully known once the IMF executive board approves the deal and releases the document. At the moment, we only know that Mr Tarin has given in to a major IMF demand to raise electricity prices. Speaking to Pakistani journalists in Washington after his meetings with IMF officials, he repeated his old position that raising [power] tariffs without structural changes only increases inflation and makes industry uncompetitive.

“We will increase these tariffs in a gradual manner so it does not increase inflation a whole lot,” he explained, trying to justify his volte-face.

Read more: Tarin hopeful on success of IMF negotiations, says encouraging progress made

The resumption of the IMF deal is crucial for Pakistan to sustain its external sector in the short to medium term since the growing trade gap is fuelling the current account deficit and bringing the already meagre foreign exchange reserves under massive stress. But it is bad news for ordinary people. Besides making electricity a lot more expensive, the IMF is likely to force Islamabad to implement measures to boost income, consumption and import taxes to pull up its revenue target of Rs5.8tr for the present fiscal year to Rs6.3tr, abolish or significantly reduce all kinds of subsidies, and hike interest rates. The brunt of these inflationary actions will primarily be borne by the low-middle-income families already struggling to cope with eroding funds.

Does the government realise this and can Mr Tarin — whose term as unelected finance minister expired Friday night because a Senate seat to get him elected to the Upper House could not be found — clinch any concessions from the IMF on behalf of ordinary Pakistanis? At the end of the day, Mr Tarin may keep his office in Q Block as a minister or as an adviser. However, the conditions tied to the loan programme are going to unleash a strong public backlash. How will a politically beleaguered government deal with public outrage and what will it mean for the PTI’s electoral prospects? Only time will tell.

Published in Dawn, October 18th, 2021

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