More ‘prior actions’

Published June 30, 2022

JUST when we thought that everything with the IMF had finally been settled for the resumption of its stalled bailout funds, the lender has come up with new ‘prior actions’ before it signs the staff-level agreement with Pakistan and releases the dollars badly needed to shore up our declining foreign currency reserves and prop up the rupee.

The Memorandum of Economic and Fiscal Policies received by Pakistani authorities from the lender the other day clubs together the pending seventh and eighth performance reviews of the programme. That will help Pakistan receive up to $1.9bn but not before the government does a little ‘more’ to earn it. Resultantly, the approval of the agreement and consequent release of the funds have been delayed to end July or early August. This will, in all likelihood, delay the ‘unlocking’ of other committed multilateral and bilateral assistance and dampen market sentiment, even if temporarily.

Indeed, most new loan conditions pertain to the measures the government has already committed to with the Fund. But the lender wants those to be formalised and given legal cover.

For example, it has asked the government to sign an MoU with the provinces to jointly produce a cash surplus of Rs750bn to help Islamabad meet the condition of keeping the consolidated fiscal deficit for the next year at around 4.9pc of GDP. Then, the Fund wants the government to present the plan to impose a petroleum development levy of up to Rs50 a litre on fuel to the cabinet for its approval to meet an enhanced PDL target of Rs855bn before concluding the deal. Likewise, the IMF wants a series of structural benchmarks such as the increase in electricity prices to be implemented prior to finalising the staff-level agreement.

Editorial: IMF agreement

However, the ‘fresh’ demand for complete deregulation of the petrol pricing mechanism allowing the market to determine its retail prices could still be a sticky issue. The condition is understandable given revenue losses of about Rs200bn due to the previous government’s politically motivated decision to cut prices and freeze them for four months.

The implementation of most of these prior actions shouldn’t take more than a week. The government has already conceded a lot to revive the programme by making a fiscal adjustment of over Rs1.7tr or 2.2pc of GDP, the biggest adjustment in a single year, mostly through further taxation on existing taxpayers whether businesses or individuals, at the cost of the political capital of the ruling coalition, especially the PML-N.

In such circumstances, it is unfair of the IMF to defer the approval and release of its funds for another five to six weeks, given that the delay will bring more pressure on both the fiscal and external accounts and hurt market sentiment. It, therefore, is crucial that the Fund reconsider its stance and release the funds at the earliest to calm the uneasy markets.

Published in Dawn, June 30th, 2022

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