Funding roadblocks ahead
The IMF team was definitely not surprised, even if Dar sb’s team was at the Dubai talks, that FBR inefficiency (and incompetence), energy problems, the deficit and foreign exchange pressures have put further funding at risk. Among other things, this is an ominous sign for the future. The team has been ironing out such issues throughout the duration of the present program, and might well get its way this time around. But the program is expiring next year, and Pakistan has been singularly unable to meet core criteria, which means the finance ministry might not have as much elbow room in the next fiscal.
If the last few meetings with the Fund have proved one point, it is that revenue, power and forex problems are unlikely to go away till this government is in office, at least. Each time the two sides met in Dubai, Dar sb’s team would request a revision of the deficit target, or the revenue limit, etc, and then sell the acceptance as a victory for Pakistan’s economy. But now that the ride is looking to come to an abrupt end – at least from the government’s point of view – it is time for a little soul searching on part of the ruling party.
With tax earning paralysed, the deficit bloating (as usual) and the rupee under pressure, exogenous factors have also turned unfavourable. The Brent collapse, for example, has now factored through the Gulf market, compromising remittances – long the strongest forex support pillar. The Fund’s advice, like buying dollars in the open market, are not feasible under the present regime. Rupee depreciation would not be offset, in our case, by export earnings because that is another area totally ignored by the government. Islamabad must formulate policies to stimulate earnings and revenue. Short of that, it will find itself pushed into an increasingly awkward position. Nothing makes a sitting government as helpless as a tanking economy as general elections draw close.
