Knowing that moves were afoot to pass a no-confidence move against him former PM Imran Khan announced a reduction of Rs10 per litre in petrol/diesel and Rs5 in electricity prices. This was meant to be a populist move aimed at raising public support for a beleaguered government and creating difficulties for the next administration if the no-confidence move succeeded. The move gave birth to apprehensions about the fate of the next tranche of the $6 billion Extended Fund Facility (EFF). Recently the situation in Sri Lanka added further worries regarding the state of the national economy. It soothed many people’s nerves when new Finance Minister Miftah Ismael dispelled the impression that the current financial crunch could force Pakistan to default. The decision to stay in the IMF programme would end a phase of political uncertainty and bring clarity in economic policies and put an end to turmoil in markets.
While it would be hyperbolic to call it a ‘breakthrough’ as being projected by some, what the new economic team has managed to achieve is a breathing space. The Fund has been assured that the new administration takes full responsibility for the previous government’s commitments and sovereign guarantees but wants a stalled implementation of some of IMF’s conditions to reduce the severity of the impact on the common man, Miftah Ismael agreed to end amnesty scheme for industries but sought delay in the increase of power tariff.
While agreeing that there was a need to end to the fuel subsidy because it was creating a fiscal hole, Pakistan’s economic team emphasized the costs in the form of mass suffering and unrest if it was implemented in one go. The government is supposedly meditating a plan of a fixed quota of subsidized petrol for motorcyclists but no subsidy for cars. There are also suggestions to cut down development work and utilize these funds for more targeted subsides for the poor.
The government possesses no rational plan for targeted subsidies to the rising number of the poor. An IMF team would be Islamabad next month to give a final shape to the agreement. Imran Khan meanwhile is ready to use any sign of pubic unrest to fuel anti-government sentiment. It will require a lot of ingenuity on the part of the government to balance the needs of the masses and the demands of the IMF.
