IMF’s expanding shadow

After a prolonged suspension of close to 14 months in the International Monetary Fund’s (IMF) $6 billion extended fund facility (EFF) to Pakistan, a staff-level agreement to release the third tranche of $500 million was reached this week. The resumption in the facility comes after the PTI government, after having resisted at first, was forced to hike power tariffs, energy prices and taxes. The most recent increase in the power tariff of Rs1.95 per unit, a 15% increase, was across the board, which meant that for the first time in two decades even ‘lifeline consumers’, those using less than 50 units per month would be subject to the price hike. In another move that is bound to pinch the poorest the most, the federal government yesterday slashed subsidies on edible oil by nearly 18 percent, resulting in an increase of Rs30 per kg, taking the price to an eye-watering Rs 200 per kg. Although a deceleration in the general level of prices has been seen in the past few weeks, with inflation easing to 5.7 percent in January from 8.0 percent in December, prices of 25 of the 51 items recorded in the Special Price Index (SPI) increased, most of which are essential food items including chicken, pulses and eggs. Simultaneously, the upcoming electricity bill for consumers of 10 ex-Wapda distribution companies (discos) is likely to go up by 93 paisa due to higher estimated power generation cost in January. Petrol prices, that have been revised upwards for the past five consecutive fortnights, are likely to increase yet again in the coming weeks.

It seems the PTI, albeit reluctantly, has decided to swallow the bitter IMF pill and carry out mandatory reforms that hit the poorest the hardest, in order to remain afloat by ensuring receipt of much-needed dollars. Sustaining this equation is going to be a herculean task for the government as IMF pressure to meet its inflationary demands is only going to increase with time. At the same time the PDM, with some fresh electoral victories in the bag, will build a narrative around how the PTI, rather than addressing the people’s problems, has exacerbated them. Something will eventually have to give if unaffordability and unemployment continue upwards for too long.

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