The IMF Board of Directors has met and released Rs 700 million, the second tranche of the current $3 billion Stand-By Arrangement. This is also the end of the caretaker government’s responsibility, for when the IMF conducts a review for the remaining $1.1 billion of the SBA, it will be April, and the new government elected on February 8 should have been in office for a month. However, it will immediately have to scramble to negotiate a programme with the IMF to replace the SBA.
As it is,Pakistan is in the grip of a stagflation which is not responding to the record 22 percent State Bank discount rate. Inflation remains stubbornly above 40 percent, indicating that the discount rate is not working. Either it is too low, in which case it should be increased, or it is too high, and should be lowered. It must be acknowledged that, apart from the very real suffering of the common man, even the presently steep inflation can easily go out of control. The country’s economy is thus teetering on the brink of just one calamity, which would send it spinning out of control. Inflation is clearly being imported, not just in terms of more expensive imports, but of domestic products produced with imported inputs, such as fuel. Though the tranche should relieve pressures on forex reserves, mounting loan repayments will soon bring Pakistan back where it was about a year ago, teetering on the brink of default.
The next government, whoever forms it, does not seem to have a plan of the sort of reforms that are needed to fix the economy. That reforms are urgently needed cannot be denied. If the plan is to get office and hang on to it for dear life, it will not work this time. The view that the IMF can be relied on forever, because then the other donors will fall in line, is already outdated. The Pakistani economy has to be so fixed that the country can pay its way in the world. That will need not just careful management in the next tenure, but the preparation of a realistic plan for the next decade or so. It is worrisome that no party has even put forward a person who will carry out the plan, let alone the plan itself. Are the blind to lead the blind after the next election?
