IMF agreement

Published June 21, 2022

WITH differences between Pakistan and the IMF over the government’s budget and macro targets for the next fiscal yet to be resolved, Washington is believed to have agreed to intervene at the behest of Islamabad to help it clinch a deal with the lender.

That Pakistan needs the IMF programme now to reverse the economic downturn in the country and stay solvent cannot be overemphasised. Pakistan requires $37bn or more to finance its debt and other payments next year. As things stand, the inordinate delay in the finalisation of a new staff-level agreement with the IMF has already shut down global bond markets and other sources of funding — bilateral, multilateral and commercial — for Pakistan, while the latter’s depleting foreign exchange stock is playing havoc with the exchange rate as the rupee dropped to 210 to a dollar on Monday.

Indeed, the US has influence over the IMF as its largest shareholder, and its support can come in handy for Pakistan. But, official confirmation is awaited although the finance minister sounded hopeful yesterday when he hinted at a deal being secured in a couple of days.

Moody’s Investors Service has downgraded Pakistan’s credit rating outlook to negative from stable. The only way out of the current economic crisis is through the IMF.

Read: Up the IMF creek

Islamabad not only wants the Fund to resume disbursements, but to also increase the package’s size and duration.

There is no doubt the coalition government has made a few tough decisions — though with a lag of several weeks and after incurring significant losses — such as raising fuel and power prices, despite the PTI’s street protests. Nevertheless, it has failed to convince the Fund on its next fiscal year’s budget, mainly regarding its exaggerated revenues and understated expenditure estimates that make the achievement of the targeted primary surplus (or the savings from its revenues after meeting all its expenses excluding the interest payments for the year) of Rs152bn suspect.

If the government’s finance team finds itself in a tight spot now or farther from an IMF deal on the sustainability of its budget, it has only itself to blame.

According to reports, the government must get its budget passed by parliament before or on June 28 to legally ensure its implementation from July 1 as required under the Constitution. This requires the government to reach a final agreement with the IMF at the earliest so that it can protect the agreed measures in its updated budget and show the expected financing from the IMF in the documents.

While the government needs to rethink its budget to show to the international creditors that it has what it takes to put its fiscal house in order, the IMF must also realise that the continuing delay in signing the deal isn’t helping anyone. The more it gets delayed, the more unmanageable the economy will become.

Published in Dawn, June 21st, 2022

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