The lifeline of the International Monetary Fund is finally in sight after months of nervous negotiations. Most of the key conditions have been met, although a few are half-fulfilled. The Cabinet’s Economic Coordinating Committee (ECC) approved a phased increase in electricity tariffs – one of the critical outstanding issues – but its ratification was held up by the Cabinet before official notification due to by-elections in Punjab.
This week might clear up the political backlog in the electricity sector. The increase in gas tariffs had also been authorized by the ECC last week subject to minor adjustments for the export sector. This too must go through cabinet ratification once the elections are over. In either case, the meter reading and billing cycle can cover a few days of late notification.
These outstanding issues are precisely the reason for an IMF Executive Board meeting tentatively scheduled for the second half of August, nearly a month after the Staff Level Agreement (SLA) was announced. . Otherwise, 15 days are considered normal for the circulation of relevant documents among IMF Executive Board members.
However, the main objectives of the Fund’s program remain unchanged. These typically include macroeconomic stabilization with social protection for the most vulnerable, governance and structural reforms, and adequate bilateral and multilateral funding to support the political effort. The fund would now disburse around $1.18 billion before the end of August to bring total disbursements to $4.2 billion. The fund program would extend for nine months until the end of June next year instead of the end of September 2022 and would increase by $1 billion to a total of $7 billion.
It would be no small service to Pakistan if senior civil servants, cabinet members and parliamentarians were subject to transparency and accountability, even if imposed from abroad.
Pakistan’s traditional one-step forward, two-step back approach to IMF programs has, however, added to the severity of this painful adjustment. For example, former finance minister Shaukat Tarin had pledged in January this year to raise the petroleum tax from Rs 4 per liter on a monthly basis to Rs 30. Under the revised scheme, the levy is to increase by Rs5 per liter each month up to a maximum of Rs50. The increase in electricity tariffs for the last financial year was committed to less than Rs 5 per unit, which has now risen to almost Rs 8 per liter due to a delayed tariff rebasing, in addition to the monthly transfer fuel, which increases the burden on ordinary consumers.
The lagged impact of price adjustments would be nothing short of a bombshell for the middle class already braving an inflation rate of over 20% – the highest in nearly a decade and a half. Nonetheless, the IMF stamp of approval along with cash injections would help Pakistan avoid, at least for now, a threat of default and weather the global inflation super cycle exacerbated by the Russian-Ukrainian war in the middle limited foreign exchange reserves sufficient for less than six weeks of imports. This will facilitate the resumption of lending programs from multilateral and bilateral lenders, as all turn to the IMF cash voucher.
Meanwhile, an impression is being given by some quarters as if the IMF’s demand for the anti-corruption effort is something new in the new staff-level deal and is somehow peculiar to the current political setup. As a reminder, strengthening governance and anti-corruption institutions and anti-money laundering for Financial Action Task Force compliance were an integral part of the initial agreement finalized by Pakistan and the IMF on 10 May 2019, as part of the Expanded 39-month Fund. Installation that has remained mostly in limbo since then.
The then Minister of Finance, Dr. Hafeez Shaikh, promised that “a working group will review the institutional framework of anti-corruption institutions to strengthen their independence and effectiveness in investigating and prosecuting corruption cases. A study will be carried out on the creation of a dedicated anti-money laundering unit within the Federal Investigation Agency” and an asset recovery unit in the Prime Minister’s office has been presented as a key to identify overseas assets of Pakistani residents.
It also committed in May 2019 that asset declarations for senior officials would be full scope (i.e. assets beneficially owned or located overseas), filed with a central federal agency, electronically searchable and appropriately verified.
Not implemented, the same targets were tied to an end-June 2020 deadline. Despite the Covid-19 excuse for not delivering on the promise, these targets were set as a structural benchmark for the fund program in April 2021 (until ‘until Dr Shaikh is in office) for the end of June 2021 deadline. including coverage also extending to the National Accountability Bureau.
Mr. Tarin pledged 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 (i.e. covering assets beneficially owned or located overseas), centralized with the Federal Board of Revenue, covering federal employees in the base pay scale 17 at 22, accessible to entities authorized by law (including banks for the limited purpose of conducting customer due diligence where appropriate for the provision of banking services) and effectively audited. public access to the annual statements of all cabinet members (elected and unelected) of the Federal Government of Pakistan.
While the IMF certificate will facilitate about $28 billion in total international inflows in the current fiscal year to help meet about $41 billion in international financial obligations, it would be a disservice to the nation. Pakistani government if senior officials, cabinet members and parliamentarians were subject to transparency and accountability even if imposed from abroad. Such a development might otherwise remain a pipe dream for Pakistanis to achieve on their own for decades.
Posted in Dawn, The Business and Finance Weekly, July 18, 2022