Swallowing the bitter pill.

Byline: Jawaid Bokhari

The staff level agreement with the IMF for carrying out 'deep structural reforms' indicates that the Fund's over-arching goal is to turn the primary budget deficit, estimated by independent economists to be in the range of 2-3 percent, into a surplus of 2.5pc. And then build enough dollar reserves so that huge debts piling up at unprecedented pace can be repaid.

Apart from fresh borrowings by the PTI-government at a rapid pace, foreign debt has increased by Rs1.4 trillion on account of recent devaluations, Special Secretary Finance Umar Hameed Khan told a National Assembly panel recently.

The IMF sees the next year's financing gap at $12 billion. Independent economists say that the primary budget surplus target is too ambitious to materialise because the huge additional tax mobilisation of Rs600bn set for next fiscal year is not possible during faltering economic growth.

To achieve the target either development or defence spending or both have to be cut, says Miftah Ismail, a PML-N leader. The IMF statement however stresses the need for 'preserving essential development spending'.

Economist Kaiser Bengali says the remedy lies in cutting federal government expenditure where his research finds room for reduction of at least 20pc, which includes cut in defence budget.

The IMF statement says that the forthcoming budget for FY2019-20 is the first critical step of the authorities' fiscal strategy. It will aim at cutting the primary deficit from 0.9pc to 0.6pc of the GDP supported by tax policy mobilisation measures to eliminate exemptions, curtail special treatments, and improve tax administration.

Some fear that incentives on major export items may be withdrawn. That explains the rationale for market-based exchange rate and further devaluation to promote trade the IMF way, says a financial analyst.

The proposed bailout is linked to timely implementation of prior actions and the agreement is subject to approval by the Fund's executive board and confirmation of international partners' commitment.

The prior actions have not been made public either by prime minister's adviser on finance Dr Abdul Hafeez Shaikh or by the visiting IMF mission. An IMF official however explained to a senior journalist that prior conditions, for example, mean the adoption or approval of a budget that is conducive to stabilisation objectives of the programme.

Dr Shaikh, who was briefly associated in the fag end of negotiations with the IMF during...

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