WASHINGTON: The budget for the next fiscal year will do little to allay the International Monetary Fund’s concerns and makes it more difficult for Pakistan to complete the pending ninth and 10th reviews of the current bailout package, experts say.

This view, shared by a Washington-based economist Uzair Younus, is backed by many in the US capital about how the budget impacts Pakistan’s chances of receiving the remaining two tranches from the IMF and of getting a new assistance package.

Even those in the IMF and the World Bank share these sentiments, although no official is willing to offer on-the-record comments because of the sensitivity of the issue.

“Economic stability is linked to political stability,” said an official when asked if the 2023-24 budget allays IMF’s concerns about the Pakistani economy.

“Forget about the two tranches. Focus on long-term reforms that can get you future (IMF) programmes,” said another. “They need to stop experimenting and [start working to] bring stability.”

The sources who spoke to Dawn explained that the current government completes its tenure in about 60 days and then there will be a new, interim government for 90 days. If a financial institution, such as the IMF, enters into a programme with Pakistan, it will require at least a year’s guarantee to implement the reforms the two sides agree on.

“How can a government that is there for 60 to 90 days give this guarantee?” one source asked.

That’s why, the sources explained, the IMF, or any other lending agency, would not enter into a long-term programme with Pakistan without a stable government.

Another source claimed that even bilateral donors, such as Saudi Arabia and the United Arab Emirates, are reluctant to help Pakistan in the absence of long-term political and economic stability. That’s why the IMF is not accepting Pakistan’s claim that it has the pledges to meet the $6 billion gap that it needs to fill, the sources explained.

Such assurance from the United States could make it easier for Pakistan to qualify for IMF programmes, another source said but added that “Washington is no longer offering such assistance”.

The sources described the 53 per cent higher expenditure, as explained in Pakistan’s federal budget presented last week, as very large. “The deficit is rising, the economy in a state of shock,” one source said.

A source explained that to curb the balance-of-payments problems, Pakistan took some “draconian measures”, which are having a negative impact on the growth. “So, the question is, how will Pakistan achieve 3.5 per cent growth, as the budget suggests?”

A former IMF official, who now works for a major US financial company and didn’t want to disclose their name fearing repercussions, claimed that the “current budget is eye-wash before elections. They will bring a mini-budget soon after the elections”.

Another source claimed that the government was not even certain about the next elections.

“If they are going to elections, how will they maintain budget discipline? How do we have guarantees that you will implement the pledges you make?” the source asked. “There is no development growth in this budget to get the economy back on track. There are no structural reforms that the IMF asked for.”

One source described this budget as an “effort to save political capital”, adding that the “real budget will come in December after the elections”.

Another source explained that Pakistan’s current programme with the IMF expires on June 30. So, the IMF board has less than 20 days to meet and decide how and when to release the remaining funds to Pakistan.

The member countries on the IMF board require the Fund’s staff to give them enough time to consult their capitals before agreeing or disagreeing with the proposals sent by the country seeking assistance.

According to the source, by the time this entire process was complete, Pakistan could hardly have a week or so to implement the reforms it suggested for getting the tranches. “How will Pakistan do that?” the source asked.

“The IMF rules require that the documents for consideration must be circulated among the board members two weeks before the meeting. How would this requirement be met?”

“If I were the IMF mission chief for Pakistan, I would say this is over. Let’s negotiate a new programme with the new government,” a former IMF official said.

Published in Dawn, June 12th, 2023



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