By Staff Reporter
ISLAMABAD: Pakistan’s economic negotiators are one by one pulling every gambit in the book to crack the IMF code that unlocks dollar inflows through a $6 billion bailout programme within this week. The ongoing Pakistan-IMF talks in Doha can go three possible directions.
The first scenario is Pakistan strikes a staff level agreement without withdrawing fuel subsidies.
Second is the talks continue for an indefinite period without reaching a staff level agreement.
In that case, the IMF would place prior actions such as withdrawal of unfunded subsidies and presenting a balanced budget for next fiscal year 2022-23, aligned with the fund’s conditions, which passes the Parliament without any change. Then the IMF Board would consider approval of the next tranche worth $1 billion by end June 2022.
The third possibility could be a flat refusal from the IMF. End of the game.
Pakistan desperately needs the IMF to dodge a default on external debt obligations. It requires an impossible $45 billion over next 14 months to bridge its yawning gross financing gap.
Such a massive requirement cannot be met without the stamped approval of the IMF.
Of the three aforementioned possibilities, the most likely is the ‘perpetual parleys’. That means no bailout, only talks.
The new government wishes to continue with unfounded subsidies. Did nobody ever tell them to be careful what they wished for as they might just get it and then regret it.
They would try to sell the IMF the doctrine of political uncertainty that was not allowing them to take the tough decision of raising the petroleum prices as it would draw such a massive backlash that this government would be nowhere to be found. So they will ask the IMF to first let them win Parliament’s approval on the finance bill FY2023.
The dilemma of that situation would be a subsidy-intensive budget with severe taxation measures, and spending cuts to restrict the budget deficit by around Rs1,500 billion or 2 percent of GDP.
This needs a bunch of out-of-the-box ideas as a traditional budget-making exercise is going to fall flat on its face.
Dollars are draining out of the kitty and Islamabad needs major injections. State bank of Pakistan’s dollar stash has eroded to $10.1 billion. If a few billion more dollars are gone, Pakistan will be in the belly of the balance-of-payment-crisis beast.
Rupee is licking its wounds at 200/dollar and further depletion in forex reserves will just claim more of its value, making imports more and more expensive, while the resulting inflationary pressures will push millions more under the line of abject poverty.
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