THE scale of fiscal adjustments the IMF has ordered the government to make over the next several weeks for the resumption of its stalled $6bn funding programme is intimidating. But more daunting are the costs that the public will be asked to pay for these very painful adjustments. The prior actions, which the IMF wants the government to take and that must be included in the budget for the present fiscal, involve slashing tax exemptions, boosting tax and non-tax revenues, cutting development expenditure, increasing electricity and petroleum prices etc. They have to be executed before the IMF board gives its approval for the revival of the programme and releases the funds that Pakistan needs so desperately to reduce the pressure on its external sector. According to details that finance adviser Shaukat Tarin has shared, the ‘mini-budget’ the government has committed to introducing in the National Assembly over the next few days, involves net fiscal adjustments of Rs550bn during the remaining part of the current financial year. These include a 22pc reduction in development spending to Rs700bn, the imposition of additional taxes of Rs350bn and an incremental increase in the petroleum levy to Rs30 per litre. Further, the government will have to ensure the passage of amendments to the SBP Act 1956 and conduct a post-facto audit of Covid-related costs, including the publication of details of the suppliers of vaccines and related procurements.

Obviously, the brunt of these fiscal adjustments that will unleash another round of inflation will be borne by the common people who are already grappling with the high cost of living. There’s no doubt that Pakistan’s return to the IMF is necessary to stabilise the external account and protect the economy. It may also be true that Mr Tarin has won some concessions from the Fund as he claims to have. But what about the promises repeatedly made to the people ever since he took over the finance ministry? What about the claims that the government would convince the IMF not to insist on painful adjustments such as an increase in taxes and power tariffs? Blaming his predecessor — and the incumbent State Bank governor — for having agreed to these harsh conditions in March will not mitigate the people’s pain. The expansionary growth-oriented policies pursued without addressing long-standing structural economic issues are as much responsible for the present state of affairs as the adjustments that are going to be made in order to get IMF dollars.

Published in Dawn, November 24th, 2021

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