The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) has warned that extensive borrowing, including the recent IMF $7 billion financing for Pakistan, is unlikely to put the country’s economy back on track, placing significant responsibility on the government to pursue reforms for long-term stability.
The FPCCI former president and BMP Chairman Mian Anjum Nisar said that with continuous hike in cost of production in the country, what the Pakistan’s economy really needs is persistent and sound economic management, asking the authorities for undertaking economic reforms and improving the regulatory environment for better Ease of Doing Business level to boost foreign investment so that financial stability can be achieved in the long-run.
He said that Pakistan’s industry had been harmed by the high cost of doing business, which discouraged investment in capacity and capability and called for easing the burden of heavy taxes on the power sector.
Mian Anjum Nisar stated that the constant increase in power tariffs on the pretext of fuel adjustment had increased electricity prices and added to the already high cost of trade and industry. Seeking comparable energy tariffs for domestic industries in order to capture the global market, he stated that due to high electricity rates, power theft became rampant as the tariff was unaffordable to consumers.
Pakistan had reached a staff-level agreement with the IMF in July for the 37-month loan, the 25th since 1958, but delays in securing a final approval created market uncertainty.
Prime Minister Shehbaz Sharif, currently attending the United Nations General Assembly in New York, hailed the decision, insisting that the government was committed to implementing reforms demanded by the deal. He said he also hoped that this would be Pakistan’s last IMF program.
Economic analysts said that while Pakistan has stabilised after a prolonged period of volatility, much work needs to be done. The agreement, in the short term, will create space for the government, but if the medium-term outlook is to improve, then the government needs to pursue structural reforms that create both fiscal space for Islamabad and assuage concerns about debt sustainability, they said.
Pakistan’s debt, which poses the biggest strain on its $350bn economy, requires $90bn in repayments over the next three years, with the next major tranche due in December.
Foreign reserves with the central bank currently stand at $9.5bn, sufficient to cover just over two months of imports.
The senior economists said that the loan primarily aims to ease Pakistan’s debt repayments.
While much needed, a program built around rollovers, expensive borrowing from commercial banks to fill in financing gaps is hardly to bring any sustainable solutions to Pakistan’s economic and financial challenges, they added.
Pakistan is the IMF’s fifth-largest debtor, owing more than $6bn as of September 25, according to the lender’s data, after Argentina, Egypt, Ukraine and Ecuador.
Analysts say one challenge before Pakistan will be to build a broad political consensus around the reforms needed under the IMF deal, including taxes, raising energy tariffs and allowing market forces to determine the Pakistani rupee’s value.
Political stability will define the fate of the program and the economy. Implementation of the reforms agenda outlined in this program, such as no subsidies from provinces, taxes on the agriculture sector, privatisation a very high level of commitment from different political parties ruling in respective provinces, they said.
Government policies, including artificially protecting the value of the rupee, as well as a catastrophic flood in the country in late 2022 meant that by May 2023, inflation soared to as high as 38 percent, while foreign reserves fell to $3bn.