Delay in funding

Published in DAWN on March 21, 2022

THE delay in the conclusion of the ongoing seventh review of the $6bn IMF funding programme for Pakistan may be niggling, but was expected. Many had expressed their doubts about the timely release of the new tranche of nearly $1bn even before the talks began on March 4. The reasons were obvious. In the first place, a liberal amnesty for tax cheats and the cut in power and petrol prices for four months through June, announced by the politically embattled prime minister towards the end of last month, were not expected to go down well with the IMF because of the potential risks for the budget as well as the fiscal deficit target agreed with the multilateral lender in January. Besides, growing political instability in the wake of the opposition parties’ plan to remove the government through a no-confidence motion against the PM means that the IMF staff is not certain if the new dispensation will be ready to ‘own’ the programme targets and conditions in case the motion is carried by the National Assembly. PPP chairman Bilawal Bhutto-Zardari has already hinted at the combined opposition’s plans to renegotiate the deal with the lender if they succeed in toppling the present set-up and form a new government.

Although the review under discussion pertains to the end-December programme targets and data, the IMF staff is unwilling to take it to their executive board by the Fund’s spring meeting, scheduled to start from April 18. They argue that the Memorandum on Economic and Financial Policies must take into account the future outlook, which should be clear about how the fiscal deficit would look like, and how it would be financed in view of the prevailing uncertain conditions. Essentially, the delay of a month or so in the release of the next loan tranche is unlikely to impact the balance-of-payments position and the foreign exchange reserves if we are able to control our current account deficit this month and the next. Pakistan has massively brought down the February deficit to just $500m from $2.5bn in January. However, this will further spoil our reputation as a reliable partner when it comes to meeting our commitments with international partners and implementing tough economic and governance reforms essential for sustainable growth. If we are willing to let politics trump our economic policy, then we should be prepared to face the consequences.

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