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‘One step forward, two steps back’

There you have it. The IMF (International Monetary Fund) poured cold water on the PM’s so-called relief package at the first opportunity it got. It wasn’t impressed with this administration’s third amnesty scheme either – this one is meant to erect a new breed of industrialists by baiting Pakistani black money parked all over the world to invest in industry back home; no questions asked. So now the seventh review talks of the EFF (Extended Fund Facility) are in danger of dragging on endlessly as well.

But didn’t the finance minister say that the package had been discussed with the IMF “as much as possible?” Why, then, would the Fund call this a “deviation” from agreed upon structural adjustment and also “one step forward, two steps back?” This isn’t the first time Shaukat Tarin tried to sneak his expansionist mantra past the IMF. Back when he shocked the economy and the Fund alike by loosening fiscal policy through a budget loaded with subsidies as soon as he became this administration’s fourth finance minister, didn’t he say that he’d bring the lender of last resort round to his point of view; because the economy was in desperate need of a shot in the arm? But he failed, and the subsidies and tax breaks had to be picked apart one by one after businesses had already begun adjusting and expanding.

Then, as talk grew of an impending mini-budget and rollback of all incentives and pressure began to mount on the government, didn’t he say that there would be no such thing, especially no finance bill? And wasn’t he wrong once again? And didn’t all the back-and-forth between the government and the lender only delay the release of the $1b which we were already bending over backwards for? Then came the PM’s surprise gift of Rs10 per litre reduction in the petrol price, less than two weeks after raising it by Rs12 per litre and explaining to everybody why it was inevitable, and Rs5 per unit reduction in electricity price, after resisting raising tariffs and freezing the bailout program for years, then giving in, and then explaining its inevitability also for months. And once again the finance minister implied that he’d settled it with the IMF, and once again he was wrong.

Two is a trend, they say, but he’s done it thrice already, which begs one very obvious question. Why’s he being dishonest? There was indeed a time, when Shaukat Tarin was finance minister in the PPP (Pakistan People’s Party) government, that Asad Umar would convene hurried press conferences and call him exactly that – dishonest about the real state of the economy – though he used a different word. Yet it’s very unlikely that a finance minister, especially one of such high stature, would deliberately lie about such things. It’s far more likely that he’s found himself in the unenviable position, just like the PPP days, of filling in the blanks after his master has delivered the decision. So when it was budget time, and then when it was mini-budget time, and now when it is no-confidence motion time, his job was and continues to be just putting lipstick on the pig, as it were, and hoping it’ll stick.

That, more than if he were really lying, ought to send shivers down spines of the hundreds of millions that make up the country’s working classes. Because it means the government will push whichever button it has to in order to deflect criticism; which can involve not just being liberal with the truth but also really harming the economy. There’s no way, for example, that cutting and then freezing fuel and power prices till the next budget will not hurt reserves in a way that people will ultimately have to pay for. Worse, what if IMF does not play along and gives only the or-else option? Will the government then “never bend” or will it take another one of its characteristic U-turns, having provided its turbo-charged spokespersons with enough firepower to win TV slugfests while the no-confidence pendulum swings?

The finance ministry’s calculations are more or less irrelevant because it’s not quite possible to quantify the pressure on reserves in the quarter ahead, despite the near-30pc fall in Brent oil futures since its Mar7 peak of $139.13 per barrel. That’s because it shot down past the 10-day moving average as quickly as it tore above it since the Russian invasion of Ukraine. It was about 24pc above it at its peak, which is always unsustainable, and already almost 16pc below it now, also not something that can hold for too long. And all it’s lost so far is the war premium, otherwise technical momentum indicators are already showing it in or near oversold territory. Should it, and other commodities rise more than the reserves can take, will the government take yet another step back, after taking a step ahead in a new direction by defying the IMF, or just fall over itself? It will have to survive the no-confidence motion to know, of course.

Shahab Jafry, "‘One step forward, two steps back’," Business recorder. 2022-03-17.
Keywords: Economics , Monetary fund , Black money , Mini-budget , Petrol price , Fund Facility , Shaukat Tarin , Pakistan , Ukraine , IMF , GDP , TV

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