Following the successful conclusion of the review on the second tranche, Pakistan is now eligible to receive the third and final tranche (amounting to $1.1 billion) of the nine-month Standby Agreement with the International Monetary Fund (IMF). With that, the country’s drive towards embracing a market economy recommences – reminiscent of the post-Cold War 1990s. Pakistan finds itself back at square one.
The nudge, mediated by the IMF, is intended to compel Pakistan to introduce structural reforms to achieve the targets of liberalisation, deregulation, and privatisation – a maxim close to the IMF’s heart. As a result, Pakistan must allow its currency to float freely, relinquish control over several state-owned enterprises, and permit privatisation. The primary objective is to lessen the burden of expenditure on the government. The secondary objective is to strengthen the private sector, which upholds the aim of performance with efficiency and profitability.
Cartoon With its three tranches, the Standby Agreement, which concludes in mid-April, has placed a premium on both efficiency and profitability in Pakistan. No country can continually compromise on these aspects solely for the sake of sovereignty, expressed through state control, especially when lacking natural resources (such as crude oil) to run its economy at its own behest. The country must reduce its imprint on the shape and flow of the economy. The conditions leading to the issuance of the third tranche are bound to reset the boundaries of Pakistan’s sovereignty, with far-reaching administrative, political, and economic implications.
Through the mutually agreed third tranche, the IMF has reshaped the contours of Pakistan’s trajectory. One benefit could be that, after undertaking the agreed structural reforms, Pakistan would be less reliant on international borrowing and aid in the future. Economic sufficiency would allow Pakistan to make decisions without appeasing one bloc of international players against another. Additionally, international players would find fewer levers to manipulate Pakistan to their advantage. Economic adequacy would help Pakistan shed the image of a client state.
A Call for Unity and Progress By successfully securing the third tranche, Pakistan has acknowledged the success of the Standby Agreement, which in turn has set the tone for any Extended Fund Facility (EFF) offered by the IMF. A reason for accepting the conditions for the third tranche was Pakistan’s interest in the EFF, contrasting with the frequent past practice of abandoning agreements with the IMF midway, incomplete. To avert sovereign default on external payments, a nervous Pakistan desperately requires further monetary assistance from the IMF in the future. Pakistan is gripped by panic and demoralisation, seeing no prospects for any financial aid, windfall or otherwise, from any quarters of its regional or international associations. On the other hand, twenty-three interactions with Pakistan have mellowed the IMF, which has adopted a calm approach, now hedging its bets.
Whereas the Standby Agreement is considered essential for Pakistan’s economic stabilisation, a long-term bailout package (such as the EFF) is considered mandatory for the country’s sustainable economic recovery. Nonetheless, the Standby Agreement has prepared the ground for introducing reforms through the EFF, expected to be negotiated after mid-April.
Pathway to Economic Stability The third tranche is responsible for initiating further internal wrangling within Pakistan. Political parties that lobbied for the 18th Constitutional Amendment (passed in April 2010) to materialise the goal of provincial autonomy enshrined in the 1973 Constitution are the most reluctant to accept any curtailment of their autonomy. The corresponding 7th National Finance Commission Award (signed in December 2009) financially expressed the concept of strong provinces and a weak Centre, personifying provincial autonomy, within the context of the federation. In fact, without financial leeway granted to the provinces, the idea of provincial autonomy in political terms is otiose.
In 2010, the provinces had concluded that mere administrative empowerment was insufficient to embody the right of provincial autonomy within the federation, called Pakistan. If the provinces are not performing to their utmost, it is not the fault of the concept of provincial autonomy. Instead, it is because the Centre somehow retained ministries that should have been devolved to the provinces immediately after 2010. Now, in 2024, the provinces are reaping the rewards of this fourteen-year deficit. The provinces stand defeated by the Centre’s capacity for the retention of power. Islamabad, epitomising the Centre, is no longer simply a city; instead, it is bordering on the status of a province – an undeclared, unrecognised one. The Centre’s yearning to retain its potency contributes to provincial inefficiency.
Political circus The third tranche has also dictated that the presence of circular debt in the electricity and natural gas sectors is unacceptable. No subsidies can be provided. Instead, tariff adjustments must be made by raising rates, while protecting the vulnerable through the existing progressive tariff structure. Similarly, retail and real estate businesses must be brought into the tax net. The policy of exclusion has brought Pakistan to its knees, as the country is forced to sell national assets to avoid bankruptcy.
Both the existence and performance of the Federal Board of Revenue (FBR) are under scrutiny. The organisation has re-affirmed centre stage in the make-or-break of the country’s economic adequacy. As an immediate concern, the third tranche has done two things: firstly, it has readjusted the revenue targets for the FBR; and secondly, it has asked the FBR to drop its quarterly approach and make monthly efforts to meet the revised targets of revenue collection to reach 30th June successfully. Nevertheless, the near future is bound to see structural renewal of the FBR to improve its performance. Come what may, Pakistan is heading for digitalisation and documentation of the economy.
Dr Qaisar Rashid
The writer is a freelance columnist. He can be reached at qaisarrashid@yahoo.com
Liberalisation, Deregulation and ...
70
16
23.03.2024
Following the successful conclusion of the review on the second tranche, Pakistan is now eligible to receive the third and final tranche (amounting to $1.1 billion) of the nine-month Standby Agreement with the International Monetary Fund (IMF). With that, the country’s drive towards embracing a market economy recommences – reminiscent of the post-Cold War 1990s. Pakistan finds itself back at square one.
The nudge, mediated by the IMF, is intended to compel Pakistan to introduce structural reforms to achieve the targets of liberalisation, deregulation, and privatisation – a maxim close to the IMF’s heart. As a result, Pakistan must allow its currency to float freely, relinquish control over several state-owned enterprises, and permit privatisation. The primary objective is to lessen the burden of expenditure on the government. The secondary objective is to strengthen the private sector, which upholds the aim of performance with efficiency and profitability.
Cartoon With its three tranches, the Standby Agreement, which concludes in mid-April, has placed a premium on both efficiency and profitability in Pakistan. No country can continually compromise on these aspects solely for the sake of sovereignty, expressed through state control, especially when lacking natural resources (such as crude oil) to run its economy at its own behest. The country must reduce its imprint on the shape and flow of the economy. The conditions leading to the issuance of the third tranche are bound to reset the boundaries of Pakistan’s sovereignty, with far-reaching........
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