PM’s Finance Adviser Shaukat Tarin explained, while talking to the press after the Corporate Philanthropy Awards on Tuesday in Islamabad, that the IMF demanded that Pakistan carry out five steps before the IMF Extended Fund Facility of $6 billion could be resumed. Perhaps the one the government is going ahead with first is the hike in the policy rate by 75 to 100 basis points, from 7.25 percent to 8 or 8.25 percent. This would explain the urgency with which the State Bank of Pakistan has summoned a meeting of the Monetary Policy Committee, which sets the policy rate, ahead of schedule. One of the IMF demands has to do with the SBP’s independence, which it wants legislated, by Parliament, and not through an ordinance. As there is a current of opinion within the government that sees such an amendment as untenable unless the Constitution is amended, the cooperation of the Opposition would be needed, something not politically feasible when it so strongly opposes the IMF package.
Other steps include a further devaluation of the rupee as well as hike in power tariffs, the current devaluation and recent tariff hike being seen by the IMF as inadequate. Both steps would be directly inflationary, and would be almost impossible to bear for the masses, which have already borne the burden of a massive devaluation, but have not yet absorbed the shock of higher energy costs.
The government is clearly in a bind. On the one hand, it badly needs the resumption of the ESAF. Not only will it provide it the money it needs to stay afloat, but it will also keep it in good standing with other lenders like the World Bank and the ADB. It will also mean that it will borrow from the financial institutions at a better rate than without the package. However, while it may have learnt that it cannot get an easing of conditions merely by negotiations, it also will have to find some way of avoiding punishment at the hustings for the conditions it has accepted.
