The much-awaited bailout by the International Monetary Fund (IMF) is finally here. After the IMF team told the Pakistani side “Take it or leave it” last Friday, Hafeez Shaikh went into a tail spin and reportedly told the prime minister that they had nothing to bargain with the IMF team and they had no option but to sign the dotted line. Signed they did on Sunday evening, accepting everything they did not want.
Before they signed up the new Extended Fund Facility for $6 billion, Imran Khan’s administration had to fire its finance minister, the FBR chairman and the State Bank governor. The replacement for the State Bank governor came from Cairo, where Raza Baqir was serving as the country representative for the IMF. Reports suggest that despite these changes, the Pakistan side had to silence one member of the negotiating team who preferred to stay out during the final round.
As things stand now, most economists, even those close to the PTI, are seeing a serious storm brewing after the IMF deal was finalised and especially after the budget, now postponed till June 10, will be announced. Details of the IMF deal are just trickling in. As days go by, and the executive board of the fund approves the deal, we will know more about it. What commitments in terms of “prior actions” have been made with the IMF will also be exposed as the budget will be presented on June 11, soon after Eid.
Former finance minister and prominent economist Dr Hafeez Pasha sounded pessimistic when he predicted at least one million Pakistanis to lose their jobs this year and 10 million more who would be pushed under the poverty line as the direct consequence of the IMF accord.
New figures strengthen the view that Pakistan’s GDP has been halved since the PTI took reigns of the country. Worse still, large-scale manufacturing and agriculture – the biggest job-generating sectors of the economy – have been badly hit and are showing negative growth. The sorry state of affairs in both sectors will push unemployment through the roof, economists say.
The other implications of the IMF deal includes raising interest rates, inflation, increasing prices of utilities like electricity and gas, just to come close to the target of 0.6 percent primary deficit. The IMF press release also expects the federal government to talk to the provinces to seek their cooperation in fiscal adjustments. This is a direct hint at cutting the share of the provinces in the NFC.
Rising interest rates means creating an unappetising investment environment. No investment means there will be no growth and this ultimately fuels unemployment. The third wave of rising prices of utilities sends another bad signal to small, medium and large-scale manufacturers. As their products get uncompetitive, the flight of the capital will begin. This will lead to a fresh rise in prices of essential items. It also means loss of purchasing power of consumers. As people buy less and demand compression is generated, it freezes supplies and a vicious cycle generating contraction goes in the overdrive.
The day after the IMF accord was announced, there was a bloodbath on the stock market losing almost 900 points. This sent a strong signal to the government that instead of confidence, the market was all doom and gloom after the IMF deal. Since a free-floating, market-driven exchange rate has been agreed with the IMF, the slide of the rupee has started again. Since the State Bank will not interfere with the exchange rate according to the deal, rupee depreciation will continue.
Pakistan’s import bill will cost us more with the slide of the rupee. When it rains, it pours. New tensions in the greater Middle East only means bad news for Pakistan as oil prices will most definitely go up.
On Wednesday, the much-talked Tax Amnesty Ordinance marketed as the Asset Declaration Scheme was announced to make a quick buck before the budget is passed. We have yet to see how much money can be collected through the scheme, but it has already served to embarrass the government as the ruling party had vehemently opposed such schemes when they were in opposition.
Whether the Opposition, which has rejected the Tax Amnesty Scheme, try to revoke it in Senate is not clear. Some analysts believe that the Opposition will huff and puff against it but would not dare to revoke it in the Senate for multiple reasons, the major one being that they are pushed to the wall and many of their leaders are caught up in various cases.
Asif Zardari, his sister Faryal Talpur and even Bilawal Bhutto Zardari are still being chased by the NAB but still remain out of jail. On Wednesday even Aleem Khan was released on bail. Shehbaz Sharif still remains in London. He may return but might not play a strident role, many believe.
The rising incidents of terror in different parts of the country suggest an aggravating regional scenario of proxy wars. The meeting of the Asia Pacific Group of the FATF, which has to decide the fate of Pakistan, also mentioned in the IMF in their press release. Even if Pakistan is not blacklisted and remains on the grey list, it won’t be such good news, given the deteriorating state of the economy.
Asif Ali Zardari signalled on Wednesday that his party will go into agitation mode after Eid. The JUI is already itching for the same. What the next budget brings for the people will decide the temperature this summer. Troubles for Pakistan never seem to end.
Its going to be a long, hot summer………with rising prices and the common man’s utopian dream of PTI’s deliverance crushed………it is a tinder-box waiting for the odd spark to happen.
Mr. Murtaza Solangi really writes well and explains it in a language even a layman like me can easily understand.