Dr. Ikramul Haq & Abdul Rauf Shakoori
Pakistan’s economic trajectory remains complicated, with future optimism intricately linked to the effective implementation of rational, tough and robust policies along with much-needed but long-overdue fundamental structural reforms. The country obtained a 9-month Stand-By Agreement (SBA), approved by the Executive Board of International Monetary Fund (IMF) on July 12, 2023. The SBA, amounting to SDR 2.250 billion (approximately US$ 3 billion at approval), served as a crucial lifeline for an economy grappling with the escalating and unbearable burden of external debts, averting the risk of submersion.
The SBA currently functions as the de facto policy guide for Pakistan’s economy, shaping its near future. With a stringent mandate of “no room for slippage or deviation”, the caretaker government has so far diligently adhered to the prescribed economic framework. This commitment has led to the successful completion of the IMF’s first review under the SBA, serving as a testament to the our adherence to stipulated guidelines. The recent approval by IMF Executive Board has not only validated it, but also unlocked immediate disbursement, amounting to SDR 528 million, equivalent to US$ 700 million, providing a significant boost to our foreign exchange reserves.
IMF has recognized the alleviation of external pressures and the stabilization of overall economic activity in Pakistan, coupled with a noticeable acceleration. Despite these positive trends, it has highlighted the persistent economic challenges ahead. It thus emphasizes the indispensable need for unwavering strong ownership to ensure that the current improvements are sustained, ultimately embedding them in the broader economy. Externally, the government faces a constrained fiscal space, and the heightened risks associated it necessitate the timely receipt of planned funds from bilateral partners and international financial institutions. The IMF highlights that any delays in this regard would pose a significant threat, given the limited available financial buffers. Therefore, maintaining a steadfast and uninterrupted financial inflow is the key for continued economic stability.
As elections are only nine days away and an elected government is imminent within a month thereafter, it is imperative for our political leadership to affirm their commitment to prioritizing national interests over political motives and/or personal gains. They should refrain from taking any economic measures that violate the ongoing SBA. IMF’s latest report offers insightful details regarding the dedication of key political parties to abide by the principles of the ongoing arrangement. It is important that, during this transitional period, political decisions align with the strategic economic framework established through SBA, ensuring stability and continuity in the national interest, as highlighted in IMF’s report:
“Given the approaching parliamentary elections, and as at the time ahead of Board approval of the authorities’ SBA request in July, IMF staff has met with representatives of Pakistan’s major political parties—Pakistan Muslim League-Nawaz, Pakistan Peoples Party, and Pakistan Tehreek-e-Insaf—to seek confirmation of their support for the program. The first two parties expressed written support for the SBA’s key objectives and policies. They also recognized the role that the SBA will play in preserving macroeconomic stability by anchoring policies and supporting external financing over the coming months. The third party, which had also supported the SBA in July, issued a statement noting the importance of free and fair elections to the successful implementation of the Fund-supported program”.
As evident from above and facing wrath since May 9, 2023 ghastly events, the PTI had tried to leverage its political position vis-à-vis IMF’s ongoing SBA. Instead of showing a visionary perspective beyond its immediate political concerns, it has used this situation as a bargaining chip to address its domestic political challenges that is a level playing field for transparent, fair, and free elections that is also the requirement of the supreme law of the land—the Constitution of Islamic Republic of Pakistan.
According to a report from Voice of America, a delegation from the PTI conveyed to IMF representatives that their prior endorsement of the loan programme was contingent on transparent elections. Expressing concerns about the transparency of upcoming elections, they hinted at the possibility of withdrawing support for the IMF programme. This move by PTI, according to many observers, raises questions about the prioritization of national welfare over political considerations, adding complexity to the economic landscape.
In the lead-up to the IMF Board meeting, while the Pakistan Democratic Movement (PDM) was engaged in negotiations to revive the stalled Extended Fund Facility (EFF), a noteworthy development unfolded. Both the former Federal Finance Minister of PTI, Mr. Shaukat Tareen, and the then incumbent provincial finance ministers for Punjab and Khyber Pakhtunkhwa (KPK), launched an “unprecedented and unceremonious” last-ditch effort to destabilize the IMF programme.
A letter authored by Taimur Saleem Khan Jhagra, the provincial finance minister of KPK, surfaced in the media, revealing the expressed inability to meet the provincial surplus target committed earlier to the federal government. It is crucial to underscore that maintaining surpluses by provinces during the fiscal year constituted one of the key requirements outlined in the IMF EFF programme. This move by key figures within PTI raised serious questions about the internal coherence and commitment to the economic recovery agenda.
The PTI government took certain actions aimed at advancing their political agenda, which blatantly violated the terms of the 39-month US$6 billion EFF programme. Consequently, it resulted in the suspension of EFF significantly undermining the overall trust of the lender of last resort in the Government of Pakistan.
Even after the subsequent resumption of EFF, the then finance minister, Muhammad Ishaq Dar, who represented the political alliance government of Pakistan Democratic Movement (PDM), failed to steer matters in the direction mandated by the lender. This failure exacerbated the already looming risk of default, raising concerns about the effectiveness of governance and economic management within the political landscape. The oscillations in policy adherence further underscore the challenges in maintaining a stable economic position.
It is imperative for our political leadership to grasp the gravity of the current situation, recognizing that the successful completion of the ongoing arrangement and potential initiation of a new long-term programme post this SBA are imperative. The consequences of political leadership’s casual approach and shortsightedness have been significant in recent times. While there are optimistic signs of recovery and increased economic activity, it is vital to accelerate the momentum that is paramount for bringing an end to the economic turmoil that Pakistan has been grappling with, emphasising the need for strategic and forward-looking decisions by political leaders.
______________________________________________________
Dr. Ikramul Haq, an advocate of the Supreme Court and writer is an adjunct faculty at Lahore University of Management Sciences (LUMS). Abdul Rauf Shakoori is a corporate lawyer based in the USA.