Towards sixth review

According to media reports, the sixth review talks with the International Monetary Fund (IMF) have been scheduled for 4 October. If successful, subsequent to approval by the Fund’s Board, 750 million SDRs would be disbursed which are at present regarded as critical to generating the 14.7 billion dollar external funding required at considerably more favourable terms and conditions to meet the budgetary requirements for the current year estimated at 2.7 trillion rupees (an estimate that requires a recalculation as it was based on the rupee-dollar parity of 153 while at present the rate is above 169).

This rescheduling is in the backdrop of the unsuccessful sixth review talks with the Fund staff in June 2021 shortly after the Finance portfolio was given to Shaukat Tarin who publicly acknowledged that the harsh upfront monetary and fiscal policy conditions agreed by the previous negotiating team led by Dr Hafeez Sheikh in February 2021 during the second to fifth review talks – were anti-growth with a consequent high cost payable by the people of Pakistan and therefore could not be implemented. The sixth review talks were postponed to 3 September, to meet the original schedule of reviews to ensure that the programme completion date would remain 2 September 2022 – a year prior to the elections perhaps to ensure that politically painful structural adjustments and time-bound conditions are not held hostage to the elections as has been witnessed time and again in Pakistan. Past precedence, however, indicates that the possibility of the budget 2022-23 being anything but an election year budget is highly unlikely.

While the second to fifth reviews were clubbed together to ensure that the scheduled programme completion date would remain the same the Fund’s envisaged disbursement in the original second to fifth review was 1544 million SDRs against the 350 million SDRs that were disbursed after the four reviews were clubbed. In dollar terms, this implied that 2 billion dollars out of the six billion dollar programme were released till the completion of the fifth review necessitating an extension in the number of reviews from the original eight to 10. In other words, successful completion of the sixth review envisages the disbursement of 750 million SDRs, seventh 491 million SDRs, eighth and ninth 491 million SDRs each, and the tenth review 651 million SDRs.

The IMF has indicated that as the macroeconomic indicators have improved with a growth rate double that of what was projected for last year therefore re-phasing of some of the harsh conditions is on the table; however, there is a limit to which the Fund would agree based on the focus during the current programme on structural adjustments, specifically with respect to the poorly-performing power sector.

Tarin has pledged that the base tariff rate will not be raised, a rate premised on the lowest cost amongst all Discos; however, the fuel adjustment charges and the requisite taxes would continue to be passed onto the consumers – components that are being impacted due to an eroding rupee and the need for the government to generate revenue to appease the Fund’s demand for raising tax revenue. The finance minister has proposed many out of the box measures to increase revenue through enhancement measures, including the gift scheme and third-party audit; however, with the third month of the current year nearing its end the implementation of these proposals remains pending.

The success or otherwise of negotiations with the Fund would also determine the amount of assistance procured from bilaterals/multilaterals with an associated low rate of interest. The budget 2021-22 envisages 1.99 trillion rupees programme loans (budget support) in the current year with the Fund budgeted to account for a little less than one-fourth, notably 496 billion rupees, with reliance on commercial banks (high rates of return with a small amortisation period) accounting for 779.2 billion rupees Pakistan is not going to be out of the woods because of the sixth review disbursement. One would hope that the government begins to focus on reducing expenditure instead of being focused on raising revenue and in this respect, the decision to raise the house allowance of government employees, at taxpayers’ expense, is perhaps not appropriate from a macro perspective at this point in time.

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