Difficult path to follow – Journal
THE country report released by the IMF after the completion of the seventh and eighth reviews of the Expanded Financing Facility for Pakistan clearly shows that the lender of last resort has Islamabad on a very tight leash: it is understandable that it no longer trusts the leaders to stay the course. Prime Minister Shehbaz Sharif’s coalition government has been forced into a firm commitment to immediately embark on a contingency plan to impose additional taxes in case its revenue collection falls below the budgeted target over the course of the year. month in order to maintain the consolidated budget deficit at 4.6 pc and achieve a primary budget surplus of 0.2 pc the size of GDP. The unimpeded flow of remaining IMF bailout dollars over the next 10 months to June 2023 will depend on the implementation of several other program objectives, including raising gas prices by 53%, reviving the GST on petroleum products and the removal of electricity and energy subsidies.
If anyone thought that reviving the loan program would alleviate its problems, they were wrong. Hard times will get worse and we don’t even know how long this period will last. It is estimated that the country’s foreign financing needs will fluctuate between $31 billion and $39 billion over the next few years and the world’s lack of confidence in our economy means that Pakistan may continue to need IMF support to remain liquid in the future. short and medium term. Perhaps the narrow path set by the IMF for us is what we need to act together.
That said, it should be stressed that the catastrophic floods that have affected 33 million people and devastated livelihoods, crops and communication infrastructure across the country in recent weeks will put additional pressure on the fiscal and external accounts. Economic losses from the floods have been estimated by Minister of State for Finance Aisha Ghaus Pasha at nearly Rs2tr or 2% of GDP. Analysts predict that emerging flood-related pressures will push headline inflation, which was recorded to a nearly 50-year high of 27.3% in August, higher due to potential food shortages due to chain disruptions. supply. GDP growth is expected to slow further to around 2% from the IMF estimate of 3.5% due to heavy crop and livestock losses and slowing demand for industrial goods. In short, it will be difficult for the government to stay on the narrow track of the IMF program. The question now is: will the IMF take into account the potential impact of the floods on the economy and ease its conditions? It’s not likely. But Islamabad could get additional funding from the Fund and other multilaterals if it continues to follow the course set under the bailout. It’s the only silver lining in the dark clouds hanging over us right now.
Posted in Dawn, September 5, 2022