The cost of the sixth installment
Jhe IMF has approved the long-delayed $1 billion tranche of its $6 billion loan program, bringing great relief to government negotiators and apprehensions of further financial hardship for the average Pakistani. The release of this sixth tranche means that Pakistan has received approximately half of the original loan amount.
A positive development, however, was the approval of Pakistan’s request for a waiver of the applicability and non-compliance with the performance criteria, which means that Pakistan will be given some leeway in concerns the strict reforms included in the loan conditions. This will be key to mitigating the impact of international financial agency conditions, which currently require even more increases in taxes and electricity tariffs, among other reforms.
Already, the mini-budget – which was necessitated almost entirely by IMF loan conditions – has taken its toll on the population and raised questions about the government’s ability to weather the storm of public discontent. However, it seems that by approving the loan, the international lender is expressing its satisfaction with the reforms undertaken so far by Pakistan and, more importantly, the implementation of these reforms, including increased autonomy from the central bank, new taxes and the withdrawal of several subsidies. and tax exemptions.
To some observers’ surprise, the IMF has predicted that Pakistan’s growth rate for the current fiscal year will be around 4%, significantly higher than the World Bank’s latest estimate of 3.4%. but still below the government’s forecast of 4.8%. However, the IMF has also warned that inflation is expected to “rise this year before gradually slowing down” – which does not bode well for millions of ordinary Pakistanis struggling to make ends meet. Recent studies have universally shown that poverty has increased in recent years, which means that further inflation could seriously threaten the health and well-being of a large part of the population.
It also makes us wonder who in the IMF came up with the summary that “recent economic and financial policy efforts…were appropriate to safeguard macroeconomic stability and debt sustainability.” There are also many adjectives that can be applied to Pakistan’s economy right now, but stable and sustainable are not among them. The IMF also appeared to blame inflation or “domestic price pressures” almost entirely on the current account deficit, ignoring the loss of subsidies on several key items it had claimed.
Anyone in the field will tell you that there are better ways to close the revenue gap, including cutting non-development spending and targeting the ultra-rich for higher tax collection, but those these never seem to show up. Instead of a reasonable wealth tax to force a handful of billionaires to help build the country that made them rich, the IMF and the current government, like its predecessors, remain focused on the poor and the families of the middle class.
Published in The Express Tribune, February 6and2022.
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