Three years into the ‘hybrid regime’ of selected Prime Minister Imran Khan, Pakistan’s economy is worse off than it has ever been. The only hope the current regime has of surviving for two more years is if they are able to turn the economy around. Apparently, the government is placing its bets on geopolitics (the US withdrawal from Afghanistan and need for Pakistan) and the IMF (White House will help ensure Pakistan gets money from the IMF.)
In his latest column, economic journalist, Khurram Hussain refers to this as “a massive bet” that “could either prove to be the turning point” or “the year in which the hybrid experiment unravels.”
Hussain points out that “The bet is that outside help is about to arrive in quantities large enough to underwrite a boom in the economy. We got a first glimpse of this when the government proudly announced that a $1.5 billion “oil facility” from Saudi Arabia has been agreed and will begin from July. Pakistan imports anywhere from $6bn to $10bn of petroleum products (including crude) in a year, so the amount of the facility is barely enough to cover two to three months of our requirement, but when spread out over a longer period, it will certainly take some pressure off the import bill and allow the government some room to keep oil prices relatively stable at the pump while at the same time increasing the petroleum development levy, perhaps not by the amount required to meet the target of Rs610bn collection from it this year. But it is entirely possible that the size of the facility will be increased down the road.”
If, Hussain notes, the IMF “sugar-coats” or “sidesteps” questions on problems with Pakistan then “it will be our first clear indication that geopolitical muscle is being applied on the Fund. If that happens we can be reasonably certain that the government is going to get its way, and that includes not just significant modifications to the program as envisioned in the last staff report, but quite possibly also an augmentation of funds of around $2bn by August or September this year. Nothing less will do.”
However, “if they fail to secure the external support that they need to pull off what they are trying to do — spend their way out of the doldrums — then this may well be the year the experiment begins to unravel. Their own budget is unravelling fast, starting less than 24 hours after its announcement on the floor of parliament, when the finance minister admitted the next day that a particular tax on internet and cellular services was included by accident even though it was not approved by the cabinet. That tax was supposed to bring in around Rs100bn, but when it was withdrawn and reporters asked how they intend to fill the hole left behind in the revenue plan, the only answer they got was “it will be done through administrative measures.”
