The International Monetary Fund lifeline is finally in sight after months of jittery negotiations. Most of the key conditions have been met, although a few are half complete. The Economic Coordination Committee (ECC) of the Cabinet has approved a phased increase in electricity rates — one of the crucial outstanding issues — but its ratification was withheld by the Cabinet before formal notification because of Punjab bye-elections.
This week would perhaps clear the policy backlog in the power sector. Gas tariff increase had also been cleared by the ECC last week subject to minor adjustments for the export sector. That too has to pass through the cabinet ratification after elections are over. In both cases, the meter reading and billing cycle can cover up a few days of delayed notification.
Such outstanding issues are precisely the reason for an IMF board meeting tentatively scheduled in the second half of August, almost a month after the Staff Level Agreement (SLA) is announced. Otherwise, 15 days are considered normal for the circulation of relevant papers among the IMF executive board members.
The key Fund programme objectives, nevertheless, remain unchanged. These generally include macroeconomic stabilisation with social protection for the most vulnerable, governance and structural reforms and adequate bilateral and multilateral financing to support the policy effort. The fund would now disburse about $1.18 billion before the close of August to take total disbursements to $4.2bn. The fund programme would extend by nine months to the end of June next year instead of the end of September 2022 and expand in size by $1bn to a total of $7bn.
The Traditional Steps
The traditional one-step-forward-two-step back Pakistan approach to Fund programmes has, however, added to the severity of the painful adjustment. For example, former finance minister Shaukat Tarin had committed in January this year a Rs4 per litre increase in petroleum levy on monthly basis to Rs30. Under the revised programme, the levy has to increase by Rs5 per litre every month to a maximum of Rs50. The power tariff increase for last fiscal year was committed at less than Rs5 per unit which has now gone close to Rs8 per litre because of delayed tariff rebasing, on top of monthly fuel pass through, adding burden to the common consumers.
The lagged impact of price adjustments would be no less than a bombshell for the middle class already braving over 20pc rate of inflation — the highest in almost one and half a decade. Nonetheless, the IMF seal of approval along with cash injections would help Pakistan avert, at least for the time being, a default threat and sail through the super cycle of global inflation exacerbated by the Russia-Ukraine war amid limited foreign exchange reserves enough for less than six weeks of imports. This will facilitate the resumption of loan programmes from multilateral and bilateral lenders alike as all look towards the IMF’s clean chit.
An impression in the meanwhile is being given by certain quarters as if IMF’s demand for the anti-corruption effort was something fresh in the new staff-level agreement and was somehow peculiar to the current political set-up. For a reminder, strengthening of governance and anti-corruption institutions and anti-money laundering push for Financial Action Task Force compliance was very much part of the original agreement finalised by Pakistan and IMF on May 10, 2019, under the 39-month Extended Fund Facility that remained most of the time in limbo since then.
It was promised by then finance minister Dr Hafeez Shaikh that “a task force will review the institutional framework of the anti-corruption institutions to enhance their independence and effectiveness in investigating and prosecuting corruption cases. A study will be conducted on establishing a dedicated anti-money laundering unit in the Federal Investigation Agency” and an assets recovery unit in the prime minister’s office was presented as a key to identifying assets abroad by Pakistani residents.
It was also committed in May 2019 that asset declarations of high-level public officials will be comprehensive in scope (ie, assets with beneficial owners or located abroad), filed with a central federal agency, electronically searchable, and appropriately verified.
Not implemented, the same objectives were tied to an end of June 2020 deadline. Despite the Covid-19 excuse for not honouring the promise, these objectives were made as a structural benchmark of the fund programme in April 2021 (till Dr Shaikh was in office) for the end of June 2021 deadline. With the change of leadership to Shaukat Tarin, the deadline for the structural benchmark was subsequently revised end of January 2022 with stricter conditions including the coverage extending to National Accountability Bureau as well.
Mr Tarin undertook that “to further advance transparency, accountability, and integrity in the public sector, we will issue regulations to establish an electronic asset declaration system (end of June 2021, reset to end of January 2022) that is comprehensive (ie, covering assets beneficially owned or located abroad), centrally-held with the Federal Board of Revenue, covering federal civil servants of Base Pay Scale 17 to 22, accessible to entities authorised by law (including banks for the limited purposes of conducting customer due diligence as required for the provision of banking services), and effectively verified. It will also institutionalise public access for annual declarations for all members (elected and unelected) of the federal government cabinet of Pakistan.”
While the IMF certificate will facilitate about $28bn in total international inflows during the current fiscal year to help meet about $41bn in international financial obligations, it would be no mean service to the Pakistani nation if senior civil servants, cabinet members and parliamentarians are subjected to transparency and accountability even if it is imposed from abroad. Such a development may, otherwise, remain a pipedream for Pakistanis to achieve by themselves for decades.