The Pakistan government will soon present a mini-budget to address concerns of the International Monetary Fund (IMF) who will not release the bailout package if necessary reforms in the Pakistani economy are not implemented.
According to a report by Pakistan-based news outlet Dawn, the prevailing mood in Islamabad’s corridors of power is that of concern and uncertainty because the reforms would certainly mean more problems for the Pakistani common man.
The uncertainty among the ruling coalition is regarding whether they will remain in power because the mini-budget and the plans to revive the economy could anger the public.
The IMF’s recommendations are also expected to stoke up inflation. Inflation is on the rise already due to high interest and inflation rates, global economic slowdown, rising commodity prices and the war in Ukraine.
The report by Dawn outlined that a 30% hike in electricity prices and 60-70% hike in gas prices along with a new set of tax measures and hike in interest rates is on the cards.
Experts told the news outlet that inflation will rise by 5-10 percentage points. Inflation in Pakistan is currently at 25 percentage points. They also said that such moves will lead to political ramifications and will not be palatable.
Experts also pointed to the three separate forex markets in Pakistan who have contributed to the stagflation in the country. Due to three separate forex markets remittances and exports are declining.
This also does not mean good news for Imran Khan and Pakistan Tehreek-e-Insaf (PTI) as the report pointed out that the hardships will take longer to ease and whichever government is ruling Pakistan will have to take a mature approach. It said that the next government will face tougher situations.
They also told the Dawn that Pakistan’s coalition government should have rushed to the IMF earlier which would have helped because the international community and the market would have received an idea regarding what direction they should take. They said since the decision has now been taken, the uncertainty will temporarily ease.
It also signals that the Sharif-led government is ready to take risks even if it comes at a political cost.
If Pakistan and the IMF reach an agreement, Islamabad will immediately receive at least $1.2bn and Saudi Arabia, UAE and China along with institutional lenders will also release funds. The friendly countries have urged Pakistan to responsibly follow economic reforms while expressing public support for the country.
The IMF wants Pakistan to increase electricity rates by PKR 7.50/unit. Pakistan has been told to monetise its gas price losses and system losses. It has also been asked to implement a full recovery of PKR50 per unit petroleum levy on all products, while finalising a market-based exchange rate.
If these conditions are not met then the IMF will not sanction the bailout package and the friendly countries will also hold back on releasing the much-needed funds.
This also means that China’s $700 million, Saudi Arabia’s additional $2bn and UAE’s full package of $3bn would remain unreleased. However, one expert while speaking to the Dawn expressed concern regarding the willingness of the ruling government to swallow the bitter pill and impose the reforms in an election year.
(PKR - Pakistani rupee)
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