Teetering on the brink

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It might seem to the country’s economic managers that the relief afforded by the covid-19 pandemic is wearing off. The latest credit rating by Moody’s is a retention of the current B3 rating. Despite official tub-thumping, the best that can be said about it is that there was no downgrade, for the rating itself is nothing to write home about. Meanwhile, the International Monetary Fund (IMF) has resumed asking tough questions about the economy after not just holding off for a while, but providing emergency lending over and above the Extended Fund Facility (EFF) package it had already given. Indeed, it was with regard to the EFF package that it has once again begun asking questions about revenue slippages, tariff changes and tax reforms that the country not carried out, even though it had committed it to the IMF. Revenue slippages were explained away when the covid-19 pandemic began, by the pandemic, but the IMF sees that excuse as wearing thin.
It is not just revenue. The IMF is raising questions about the power sector, where circular debt has reached Rs 2 trillion. There has also been difficulty about power sector reforms, as shown by the fate of the NEPRA Act, which the government could not get through even the National Assembly, let alone Parliament. There is also State Bank reform, where the Finance Ministry opposes giving it full autonomy.
The country going into an IMF program would mean forex improvement, but it seems not this time. The withdrawal by Saudi Arabia of its $1 billion deposited with the State Bank may have to do with its political concerns, but it does reflect the danger of relying on foreign economic props. Getting China to fill the gap leaves Pakistan open to a similar withdrawal, especially if, as now because of the pandemic, governments are strapped for cash. It cannot help Pakistan with the IMF that it is greylisted by the Financial Action Task Force and thus threatened by blacklisting. Pakistan’s economic problems, the reason why it put itself in thrall to the IMF, were because of foreign exchange difficulties. Those difficulties will not go away with the re-opening of the economy, because Pakistan will not begin to earn foreign exchange until the rest of the world starts buying and selling again.