Economic reforms vital to avoid another IMF bailout in next budget

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The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel said that amidst precarious external and fiscal situation, the government might go back into yet another IMF program after the expiry of the current $6.5 billion package in June this year for next budget if regulatory environment is not improved and economic reforms are not under taken.

FPCCI former president and BMP Chairman Mian Anjum Nisar said that the government needs to implement economic stabilization policies for a prolonged period to correct critical imbalances threatening its economic viability.

He said that any deviation from the fiscal and monetary path agreed with the IMF during the 9th review will increase the cost during negotiations for the next loan tranche, and the new bailout package.

The country cannot afford to have a large current account deficit (CAD) in the current and next fiscal years, as the large deficits in the past have remained an important source for financing consumption-led economic growth. This accelerated the process of economic destabilisation of Pakistan.

The regional countries whose financing was very crucial for the approval of the $1.1 billion loan tranche are also pushing Pakistan to adopt a fiscally prudent path. Their assurances are critical to set a date for the IMF board meeting, even if both sides reach staff level agreement. The IMF will seek assurances directly from the regional countries before setting the board meeting for approval of the loan.

He said that the government has committed to follow the real positive interest rate going forward, measured by headline inflation. He also advised the State Bank of Pakistan to remove import restrictions and withdraw guidelines issued to commercial banks about priority in opening Letters of Credit (LCs).

In these challenging times there is a need for quarterly reporting of the GDP growth figures to reveal real economic patterns.

The government, however, will face the challenge of dealing with low economic growth and high inflation – an outcome of politically motivated decisions taken by the successive governments during the past two years.

Due to serious and critical imbalances threatening the country’s economic viability, Pakistan cannot afford to roll out monetary and fiscal policies to achieve over 4% economic growth rate in FY2023-24, starting from July.

Under the domino effect of dollarization, the skyrocketing inflation, which is already in the midst of a decade-high level, along with the unprecedented rupee depreciation, high energy tariffs, escalating markup rate, rising commodity prices, fluctuating exchange-rate and balance-of-payment crisis, will lead to further hike in headline inflation, taking a toll on the local economy, he warned.

The BMP Chairman, referring to the reports of financial experts, observed that the domino effect of dollarization has destroyed every sector of the country, as the inflation will hit the decade highest level.

He said that the inflationary pressure is expected to continue in coming months as electricity base tariff hike and gas price revision have yet to reflect in CPI numbers, while sharp rupee depreciation would also add to inflationary pressures.

He said that it has now proved that the central bank’s tight monetary policy has no effect on the prices of food items that are increasing because of supply shocks, increase in sales tax rates and monopoly of few businesses.

The BMP Chairman warned the authorities that inflation above 6 percent can hurt economic growth and a careful policy is required to keep it in control. He said that the pace of inflation is skyrocketing at a time when the economic activity is slowing down, which has made it difficult for the people to cope with the situation, as country is facing a situation of stagflation because economic growth rate is slow while unemployment and prices of goods and services are high.

Mian Anjum Nisar said the present situation indicates the complete breakdown of administration in all federal and provincial governments besides highlighting the impacts of unprecedented taxation in this fiscal year. He demanded the SBP to take concrete steps to help stabilize the currency as businesses and industrial activities are badly affected, especially small and medium enterprises (SMEs) are facing high financial losses. The government has so far not rolled out the much-needed comprehensive strategy or a contingency plan to safeguard the interests of the country and its people.

The industry and businesses are all confused and at a loss as to how to go about their businesses in this state of unending fall of rupee against the dollar and high interest rates. Also, there is a trust deficit between businesses and the government on account of changing narratives presented by the government on the country’s fiscal and economic stability.