Govt to come up with mini-budget; what's next?

ISLAMABAD -- As the government finally makes up its mind to come up with a mini-budget and address other concerns of the International MoneAtary Fund (IMF) that are set to further stoke up inflation, the unfolding political uncertainties continue to pose challenges in materialising their reasonable outcomes towards macroeconomic recovery path.

Based on the prevailing and anticipated events in the run-up to the next elections, another IMF programme with perhaps tougher conditions is almost a foregone conclusion but navigating through these troubled waters would not be an easy job.

This comes amid unfavourable international environment marred by high interest and inflation rates, global economic slowdown, uncertain commodity prices and an unending Russia-Ukraine war.

To begin with, the authorities would soon be taking tough decisions that are bitter pills to the voters on the cusp of elections sooner in the two provinces, including the major battleground of Punjab, followed by across the country in general elections.

Getting back on IMF programme won't be a walk in the park in an election year

A hike in electricity prices by about 30 per cent and even bigger jump of 60-70pc in gas prices coupled with a new set of tax measures and increase in interest rates are key features of the upcoming economic storm.

The combined impact of these steps, according to economists, is estimated to push up inflation, already hovering around 25pc, by another five to 10 percentage points.

'This will have political effects and these will not be palatable,' said an economist, who has been associated with both the previous PTI and current governments.

However, along with these measures a decisive crackdown against three separate foreign exchange markets currently operating in the country would help address a very serious distortion in a system that was already perilously short of foreign exchange, he said.

This happens at a critical stage when the economy is in the midst of stagflation - a disastrous combination of low growth with high inflation. Because of the triple forex market, exports and remittances are declining and inflation is growing because of supply-side problems, he said requesting not to be named.

In the absence of these measures though, the inflation could have gone beyond 50pc in a matter of few weeks as had happened in Sri Lanka and Ghana, now braving over 70pc and 50pc inflation.

The recovery route in that case could be longer and more painful...