Asrar Raouf describes the myriad difficulties faced by the financial sphere
The social media campaign mounted by Increased financial pressures polarised groups within the country has intensified and it is quite clear that one group has so far dominated the campaign and the other groups have not been able to match its performance. The dominant groups recently launched a very powerful campaign propagating that Pakistan is on the verge of financial default and in order to avoid this horrendous spectre it is imperative that financial emergency is declared in the country. In this context many radical steps were earmarked for a proposed financial emergency that were championed by some so-called economic experts though the arguments they put forward in favour of their stance are highly flawed and are devoid of sensible locus standi. The public opinion being fickle the subject media campaign strongly caught on and also took fancy of the TV talk shows creating a sense of impending doom in the country.
Resultantly, the situation became quite worrying compelling the coalition government to categorically rule out possibility of imposing an economic emergency in the country to deal with one of the worst crises in its history. This categorical denial points out that the ruling dispensation has taken the media campaign seriously and finds itself unable to counter such propaganda. In its denial the official point of view has emphasised that instead of imposing financial emergency it was contemplating energy conservation measures to reduce the import bill. The government also stressed that it is also quite inappropriate to equate Pakistan with Sri Lanka, given inherent strength and diversity in Pakistan’s economy.
It was added that the present difficult economic situation is mainly the result of exogenous factors like commodity super-cycle, Russia-Ukraine war, global recession, trade headwinds, American Federals Reserve’s increase in policy rates and devastation wreaked by unprecedented floods. In order to counter such situation the government had been making utmost efforts to minimise the impact of such external factors, even when faced with the economic consequences of unprecedented floods and having to meet IMF conditionalities. It was reaffirmed that the government remained committed to completing the IMF programme while meeting all external debt repayments on time.
Quite interestingly, the media campaign run on the social media gives out nine points of the proposed financial emergency, out of which at least two were already under implementation related to curb on imports, while one about energy conservation was actively under consideration on the advice of the State Bank of Pakistan (SBP). In this challenging economic situation, the government has put in place a number of austerity measures with the approval of the federal cabinet and such measures are in public knowledge and are aimed at eliminating non-essential expenditures. Pakistan needs a minimum $32 to $34 billion in the current fiscal year to finance its debt and bridge the current account deficit gap. The foreign inflows in the first four months remained at $4.2 billion.
Since the bulk of this amount is spent on procuring energy therefore the government had been deliberating energy conservation mainly aimed at reducing the import bill. The energy conservation was the first measure mentioned in the social media message about economic emergency. In this context, the SBP was pushing the government to take energy conservation measures, particularly the early closure of markets and saving the fuel cost. The government’s decision to lift ban on certain imports and instead increase regulatory duties had put more pressure on the external sector. Deliberations on the energy conservation would continue in the federal cabinet and all decisions would be taken in consultation with all stakeholders and in the best national interest. It was added that the recent efforts had resulted, amongst others, in lowering current account deficits in recent months and achievement of the Federal Board of Revenue (FBR)’s revenue targets as easing up of pressure on external account is also foreseen in the near future.
On the other hand, shares at Pakistan Stock Exchange (PSX) began the week in the red as uncertainty loomed on the outlook for the country’s foreign exchange reserves with no clarity on when the pending ninth review of the International Monetary Fund (IMF) will conclude. Pakistan’s foreign exchange reserves stood at a historic low of $7.5 billion barely enough to cover a month’s imports though the country has repaid a $1 billion international bond three days before its maturity and also received $500 million from the Asian Infrastructure Investment Bank with Saudi Arabia also extending the term for its $3 billion deposit in Pakistan’s foreign reserves. It was reported that Pakistan was behind on multiple performance criteria essential for the completion of the IMF review, with authorities hinting they had asked for some waivers from the financial institution.
As a matter of fact the IMF appears to be unsatisfied with the revenue and spending plans shared by Pakistan and has sought additional information, including details of shelved development projects that have now been taken up again as a top priority of the government. Such demands increased the
frustrations of Pakistani financial managers and it was reported that the last meeting between senior Pakistani and IMF officials was not very pleasant due to the latter’s call to comply with actions that were not even due during the ninth review period. The IMF has also questioned Pakistan’s claim that it can still generate Rs.800 billion in revenue through the petroleum levy in current fiscal year, against the budget target of Rs.855 billion. The collection in the first quarter remained at only Rs.47 billion that crossed Rs.80 billion by the end of October.
Evincing doubts the IMF has asked Pakistan to provide month-wise details of petroleum levy and consumption of petroleum products from July to June 2023. IMF’s apprehensions are regarding the assumption that the government was exaggerating the collection estimates though Pakistani officialdom insists that the petroleum levy collection and oil consumption would improve as business activities had started picking up pace in the post-flood period. Pakistan has already imposed a maximum permitted levy of Rs.50 per litre on petrol and has also started increasing the levy on diesel. The delay in completing the ninth review is also affecting loan disbursements by other international creditors, putting an additional pressure on the foreign exchange reserves and the exchange rate. The IMF is seeking additional revenue measures to cover shortfall in the Rs.855 billion petroleum levy target.
Pakistan has committed that it will impose general sales tax on petroleum products, in case the collection remains below the target. In order to seek clarity on the primary budget deficit, the IMF has asked the government to provide details of spending and revenue forecast by the four provinces along with the details of the expected revenue shortfall and extra spending by the provinces in the aftermath of the floods, particularly by Sindh and Balochistan. Previously, the government had informed the IMF that there would still be a primary budget surplus of Rs.14 billion or 0.02% of GDP against the budgeted figure of Rs.153 billion. However, this assessment is contrary to a World Bank report that showed Pakistan’s primary deficit at 3% of GDP. The government had projected total expenditures, inclusive of the provinces, at Rs.15.1 trillion, up by Rs.934 billion, which the IMF thought was on the lower side.