Now that the IMF has greenlighted the next $1 billion of the Extended Fund Facility (EFF), even though it made the government bend over backwards for it, a new dilemma starts for the ruling party as well as the people. That’s because, despite all the limitations of IMF’s so-called prior conditions, the program has been sold as bullish for the economy. Sure, it will enable the government to borrow more and at better rates, but everybody knows that none of it, neither this $1b nor other loans it will facilitate, is going to do anything for the ordinary people whatsoever. On the contrary, they are going to have to pay for it, quite literally, since the additional taxes and withdrawal of subsidies that made the resumption of the EFF possible will go out of their pockets and into the state’s vaults.
It ought to worry the state bank that inflation is not coming down, nor is it likely to in the near term. And with the government preparing to present an election year budget in a few months, which will have to give primacy to growth, chances of prices spiralling even more out of control become that much stronger. That’s why the ruling party knows that more than the passage of the SBP Amendment Bill in the Senate the other day, it was celebrating the loss of face suffered by the opposition.
Both the central bank and the finance ministry have painted rosy pictures of the economy in their recent reports. But a lot of what they said ignored ground realities; like blaming only international commodity prices for Pakistan’s particular level of inflation, not giving much attention to the collapse of the rupee, and the chronic failure to improve the trade balance. If things work out as they expect, there will be little to worry about, of course, but there could be a severe public backlash if they don’t. Therefore, even as people welcome the resumption of the bailout program, they wait to see what comes next with bated breath.
