IMF bailout: a silver bullet?

The mid of February 2023 was upbeat for the government of Pakistan as they inched closer to the preconditions of the International Monetary Fund (IMF) for the revival of the Extended Fund Facility worth $7 billion. However, the resumption of the programme remains in limbo to date, with the IMF demanding the incumbents to 'do more'.

As usual, the general public is bearing the brunt of years of financial mismanagement on the part of the ruling elite, with inflation peaking at 31.5 per cent year-on-year in February.

The unlocking of the $1.1bn tranche seems arduous for the incumbents. The policy level talks, which started in February, are yet to be concluded with the signing of a staff-level agreement (SLA). The government abided by the Fund's conditions, imposing additional revenue measures worth Rs170bn, introducing a market-based exchange rate, and hiking sales tax and federal excise duty, but the Fund changed its goalpost.

It later demanded confirmation from bilateral lenders to ensure the balance of payments is fully financed, the imposition of a permanent surcharge of Rs3.82 per unit on electricity and the adoption of a hawkish monetary policy. The assistance of China by approving the rollover of a $1.3bn loan and the fulfilment of the further required actions has bolstered the hopes of the authorities, who may feel exalted once the SLA is struck. Nonetheless, the future remains tough.

Loan rollovers and the next tranche from the Fund have to be repaid eventually, thus the only way forward is to diversify and increase productivity

The issue of draining forex reserves is just the tip of the iceberg; there is more than meets the eye. Though IMF assistance will help avert default and pave the way for foreign inflows from bilateral and multilateral sources, nonetheless, strategic reforms are inevitable. The state needs to take on the onerous task of countering the impediments inherent in our economic system, or else the probability of breaking the logjam remains out of sight.

The energy sector, along with most other public institutions of the country, is no less than a white elephant for the economy. The country's circular debt surpassed Rs4 trillion by December 2022. This menace of circular debt is surging at a rate of about Rs129bn yearly, reflecting the inability and ineffectiveness on the part of the authorities.

A hefty increase in gas prices for residential and other categories of consumers will pour Rs310 billion in additional revenue...

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