Pakistan has had its fair share of IMF program but the present, stalled one might well be the most instructive of them all. That is because the government had to risk suspending it indefinitely in order to present and pass a growth-oriented budget right when we were in yet another one of our Balance of Payments (BoP) crises and needed IMF’s money to meet our debt payments. And since the IMF’s text book prescription for countries suffering from BoP problems and current account nightmares is usually aggressively contractionary, it was something of a miracle that the Fund agreed to wait and see how the economy performed before releasing the next tranche, as opposed to rolling back the bailout program altogether.
That is why it is very good news that the $6 billion Extended Fund Facility (EFF) might resume next month as the technical level talks between the two sides have made some progress. Both sides will come down from their positions a little bit but we will still have to raise energy prices and revenue collection; even if by not as much as originally signed with the lender. Duty on import of luxury items is expected to be raised rather steeply, which should do the job of increasing earning and discouraging imports very nicely. But there is talk of raising the interest rate by about fifty basis points later this year and another fifty basis points early next year, just when the business community is clamouring for further reduction.
That, unfortunately, is going to take yet more life out of the rupee, about six percent against the US dollar in FY22 according to educated estimates, which would have been less painful than it is going to be because our exports have proved to be unresponsive to such stimuli. But these are conservative sacrifices given that the IMF clearly seems impressed enough by 22pc higher than estimated tax collection in July 2021, which took the final figure to Rs410 billion, 36pc higher year-on-year, to want to keep the money flowing.
All things considered, Pakistan seems on track to come out of the technical level talks with more than it expected. There are going to be challenges, of course, but that is also precisely why there are lessons to be learnt from all this. Pakistan will have to develop workable programs to increase export revenue as well as FDI inflows. And if it must function on debt for the foreseeable future, then it must ensure the flow of the right kind of debt and improve its fragile bond market. For now, though, resumption of the IMF program would be the best that can be expected; as long as the government keeps its eye on the ball. *