The external and domestic pressures are intensifying, each pulling in different directions and generating uncertainties with mounting risks to the political economy.

       This is happening as over time the trade-offs of policy options have become more complex. For example, the huge rupee depreciation has helped increase exports and remittances, but it has failed to curb expensive imports, fueled imported inflation and reduced the purchasing power of the rupee. And the price spiral has provoked countrywide protests. The dollar hit a new record, trading at Rs175.27 on October 27.

       Analysing the causes Dr Hafiz A. Pasha says the primary reason for the higher inflation rate in Pakistan compared to other major states of South Asia was the extent of devaluation of the national currency and slower economic growth. On the basis of data quoted by him the average rates of inflation during 2018-2021 were as follows: Pakistan (7.6 per cent), India (5pc), Bangladesh (5.6pc) and Sri Lanka (4.6pc).

       And now a sort of deadlock is being observed in Pakistan’s negotiations with the International Monetary Fund (IMF) on the resumption of the stabilisation programme. A source in the finance ministry is quoted as saying that the specifics are still too fluid to be discussed. There is a list of ‘do more actions’ that authorities would need to sort out with various stakeholders.

       Critics allege that even some of the best plans of the PTI government have not been well thought out

       Meanwhile, Prime Minister Imran Khan has been able to persuade Saudi Arabia to revive its $3 billion in safe deposits and provide $1.2-1.5bn worth of oil supplies on deferred payments. This may provide Pakistan with breathing space in the talks with the IMF.

       Economist Dr Rashid Ahmed, a member of the Economic Advisory Council, thinks that the postponement of the IMF programme till December 2021 may prove to be a blessing in disguise as it will give the government time to carry out the needed adjustments in a controlled manner, blunting the political backlash.

       Analysts in securities research bodies however hold a contrary view. They maintain that any deal with the IMF is better than no deal at all, particularly to end the uncertainty that is harmful to the inflow of foreign investment and bring stability to the exchange rate.

       AKD Securities Senior Investment Analyst Shahrukh Saleem says an early conclusion of the talks will induce clarity and certainty especially with respect to the exchange rate. The rupee may appreciate against the dollar.

       Economist Dr Umer Javed argues that Pakistan should quit the IMF programme as it is not a necessary condition for sending a positive signal to other development partners and foreign investors about the country’s macroeconomic conditions. In this age of data availability and extensive reporting by media, he says, economic indicators remain readily available.

       CEO Topline Securities Mohammed Sohail says the likely outcome of talks with IMF will be an ‘agreement with tough conditions.’ The aggregate demand will go down. There is going to be fiscal and monetary tightening. “The growth phase will turn into stabilisation, heralding a growth rate of 3.5-4pc as opposed to targeted 5pc.”

       The Fund is reported to have asked Pakistan to impose additional taxes including withdrawal of sales tax exemptions by November 1 if Islamabad is keen to revive the $6bn stalled programme.

       Critics say businesses who took loans and placed orders on incentives may find difficult to adjust if incentives are rolled back on the IMF demand, ‘leaving them high, dry and very bitter.’

       They allege that even some of the best plans of the PTI government have turned out to be not well thought out. Another noted analyst says the PTI government has been jumping from one vague idea to another instead of resolving real problems.

       Now on IMF demand, Pakistan is stated to be considering imposing a federal tax on agriculture income while legal experts say it is not possible without a constitutional amendment. But relevant authorities are planning to promulgate the 4th Tax Laws Amendment Ordinance which restricts the definition of agricultural income tax (AIT) only to income from ‘crops’ by amending section 41 of the income tax law.

       In 1999-2000, some 161,069 tax-filers in the country declared farm income of Rs79bn from agriculture sources to claim tax exemptions. Currently, the provinces collect only a couple of billion rupees from AIT.

       According to the latest quarterly survey of Pulse Consultants as many as 98pc respondents complained about inflation and 77pc of them considered it was the country’s biggest problem, followed by corruption (35pc), employment (25pc), energy load shedding (11p) etc. The survey solicited responses from a sample of 1,800 people during October 4-11.

       Published in Dawn, The Business and Finance Weekly, November 1st, 2021