It would be very bad news if reports suggesting that things might have come to a head in negotiations with the International Monetary Fund (IMF) turn out to be true. If there is indeed some trouble about the fiscal deficit and the Fund indeed wants it slashed, along with gross financing requirements, in the current fiscal then we might really be headed for an impasse because considering the current state of the economy there is no way the government can do much about these things in the immediate term. And if talk of other issues, like increasing the electricity tariff by 30 percent, getting rid of the circular debt, etc, are also back on the table then we are really in for a tough time considering how important it is to get the bailout program back on track.
Just recently, after record rains wiped out what little good news had come on the export revenue front, international ratings agencies also warned that the country’s forex inflow from remittances would come under pressure as well in the months ahead. That, if anything, made the government expect a little relaxation from the Fund. If instead the donor is going to put its foot on our throat in return for the bailout there is no guaranteeing that things will work out for us for the entire duration of the facility.
Yet even if the government is able to impress upon the IMF the magnitude of the difficulties it faces and the sheer impossibility of arresting the budget deficit immediately, and things work out for now, this is not something that can be put off forever. And it doesn’t really seem that the economy is going to get much better anytime soon. Those celebrating the back-to-business feeling as everything is reopened should remember just what it was like before the pandemic, when the economy was in utter freefall. And it’s also not like we are going to get over our need for aid and bailouts just yet. So a painful period of adjustment, just to keep the loans flowing if nothing else, is inevitable. The timing will be important, especially from the government’s point of view. If it can’t push the Fund back on the reforms for too long, and progress is associated with the present bailout program, then things might get a little uncomfortable at the time of the election.