On 12 April, a day after assuming power, Pakistan’s newly elected Prime Minister Shehbaz Sharif had called an emergency meeting of the country’s top economists. The agenda was to put the country’s struggling economy back on track. But his road ahead was made a little tougher by his predecessor Imran Khan. 

In early March, after being challenged by the united opposition and his defectors, Imran Khan, realizing his grip on power was losing, announced a series of populist measures like reducing the petrol price by almost Rs 10 ($0.05)/liter and electricity by Rs 5 ($0.025) / per unit. [Read More]

Although he justified it by coating it as a relief measure for the poor, the move was taken anticipating possible elections in the wake of political instability. However, it did squander, almost immediately, around a year of hard and painful fiscal and monetary reforms that his own government had been undertaking to revive the IMF’s stalled $6 billion bailout package.

Cutting back expenditure, rolling back tax amnesty, ending subsidies on fuel and power, and reducing the ballooning circular debt were among several measures in the list of the IMF recommendations. And, most of them were already implemented. However, Imran Khan’s last-ditch move scuttled the IMF program.

Meanwhile, governments across the region have been watching the horror unfold in Sri Lanka as the result of fiscal mismanagement. In Pakistan, the trade deficit has already touched $35 billion in the first nine of this fiscal and is all set to touch around $45 billion in FY22.

Realizing that he has little time, Sharif, who is known for his administrative skills and governance style, ordered authorities to increase fuel prices by almost PKR 5. Later he dispatched his Finance Minister Miftah Ismail—who was put on the country’s exit control list by the earlier government and came out of it only this week— to London for consultation with the IMF officials.

Pakistan is looking for the release of the $1 billion from the IMF package, Ismail said just before his departure. He also blamed the former prime minister for stalling the IMF program and accused him of endangering the economy. Apart from the rolling back of fuel subsidies, the IMF has also sought fiscal adjustment of close to PKR 1.3 trillion (roughly $6.9 billion).

Consultations with the IMF are also significant as the government will present its budget for the next fiscal soon and will certainly include some of the recommendations of the IMF.

However, for Prime Minister Sharif, who is running a coalition government with partners united by the sole desire of keeping Imran Khan out, implementing necessary, but unpopular, reforms will not be an easy job. More so, when the country will go into elections in little more than a year's time, making political parties even more averse to painful measures.

(SAM)