Just as ‘all roads lead to Rome’, all financing needs in Pakistan lead to the IMF. It does not matter whether the government likes it or not, the Fund is becoming the only viable option for a much needed bailout. And the window of opportunity to avert an ugly crisis is becoming short; sooner the government acts, better it is.
The incumbents have to realize that they have overplayed the card of criticizing the previous regime, now the onus of any crisis will fall on them. Market understands that the intention of government is right; but the sentiments are building that the government lacks decision making power. That is not a good omen, as confidence cannot be restored merely on intentions, it requires actions.
The problem is that the PM and his cabinet is still hung on the philosophical levels of what is right and what is wrong, and are deliberating too much on every issue. The key ministers and advisors are too busy in meetings with desires to correct every wrong within the first six months or a year. The wrong is not to focus on key responsibilities of each member.
The government has to now shift gears from thinking to actions. The balance of payment crisis the country was facing when the government assumed power was not as horrific as it was portrayed. After the visits to friendly countries, balance of payment crisis did not end, as claimed by the FM – it created confusion. In the process, the ministry of finance lost the trust of the market.
It appears that the friendly countries’ help is somehow linked to the IMF letter of comfort. Like in the case of FATF, a few months back, when the KSA pulled out from voting in favour of Pakistan as the US exerted pressure. Seeing the KSA, China refused to vote for Pakistan as it would have been of no use.
Now, the buzz is that UAE, China and KSA are not coming with all out support to Pakistan as perhaps the US wants Pakistan to take the IMF bailout package. Only a billion dollar from KSA so far asserts the view. One cannot deny the fact that the IMF is the lender of last resort and the Fund would help the member country anyways. The theory cannot be tested without getting into an IMF programme.
Anyhow, going to IMF or not is only one indecision. There are of other decisions that do not require the IMF’s nod. But the problem is that the economic czars are too busy in finding external support to breathe. You cannot live for years by fetching a billion dollar per month to keep the nose above water.
Balance of payment is not the source of economic crisis and it will never result in collapse of the economy. The core of the macroeconomic problem is fiscal deficit and nothing concrete has been done so far to lower the deficit. Within fiscal, the biggest hole is in the energy chain – circular debt is still growing around a billion rupees per day.
The tariff increase is yet to be notified by Nepra, it has not come up with any smart solution to lower the capacity charge per unit for new plants. There is no apparent plan to pass on the ailing discos to provinces or to empower them.
Then the trade balance is skewed in Pakistan and the low hanging fruit is in rationalizing imports tariffs on raw materials and intermediate goods. But nothing has been heard in this regard either.
In case of the FBR, refunds of businesses are still stuck, but FBR pressure of immediate revenues is not letting the MoF release. There is no word on how to lower the tax concessions which were over Rs500 billion in FY18. There are relatively easier ways to cut down the non-salary current expenditure; but the finance ministry is yet to come up with a game plan.
All what the government is doing is slashing the PSDP, increasing interest rates and devaluing the currency as measures of austerity. These tightening steps are obliviously hurting growth required for creating new jobs. The uncertainty amongst the businesses – be it SME or corporate, is growing by the clock.
This could have both political and economic repercussions. The government has to give some direction by taking solid steps. And soon or else it would be too late.
Copyright Business Recorder, 2018