IMF-induced relative economic stability restored in 2024

In 2024, Pakistan narrowly avoided a sovereign default and managed to stabilize the economy on the back of yet another International Monetary Fund (IMF) bailout package. But the New Year is roaring with challenges of retaining duty-free access to European markets and handling any policy shift by the United States.Pakistan’s marginalized salaried class was pushed to the edge after, in a highly unjustifiable decision, the government and the IMF increased its tax burden to an unbearable level of 39%, forcing many people to think about their plans for the future. As a result, in July through November, the salaried class’s tax payments phenomenally jumped by 57% to Rs198 billion.The economic decision-making remained fragmented between the dwellers of the Q Block – the seat of the Finance Ministry, Prime Minister’s Office and the Deputy Prime Minister’s Office.The government appointed Muhammad Aurangzeb as the country’s new Finance Minister who secured Pakistani nationality after taking oath of office. But the banker turned politician lost significant control to Deputy Prime Minister Mohammad Ishaq Dar who gradually sneaked into the economic decision-making. Ishaq Dar is now taking decisions from gas imports to development budget approvals and taxation matters.Like the previous years, 2024 was not different in terms of economic challenges. The security and political problems compounded manifold, which made it difficult to bring in any foreign investment coupled with inconsistent economic policies. The Special Investment Facilitation Council too failed to bring any foreign direct investment in 2024 – its second year of existence.After prolonged parlays spanning over months, the board of the IMF approved a $7 billion Extended Fund Facility – the nation’s 25th bailout package. The bailout did provide an umbrella to temporarily avoid default by seeking rollovers of about $17 billion or 70% of Pakistan’s external debt related obligations.Both the IMF and the federal government took a shorter path of deferring the liabilities instead of taking the tough but sustainable route of debt restructuring. As a result, the default threat would keep looming and Pakistan will be compelled to stay in the IMF program for a longer period to avert the eventuality.The government could not effectively negotiate with the IMF and signed on the conditions, many of which cannot be implemented without setbacks. Soon after the approval of the program, the IMF had to send an emergency mission to Pakistan to review the implementation status.Various government departments have started speaking against the IMF conditions. The Federal Board of Revenue (FBR) was the first one, which argued that its nearly Rs13 trillion tax target had been agreed on the basis of wrong assumptions. Resultantly, the first half’s goal was missed by a wide margin.The Petroleum Division also came forward and told the Prime Minister that the condition related to ending subsidized gas to the industries was met despite its reservations. The Ministry of National Food Security and Agriculture also said that it was overruled on the issue of ending agriculture support price mechanisms. So were the provinces, which have shown reluctance to increase agriculture income tax rates to 45% under the IMF deal.One of the reasons for the current situation was lack of political wisdom and role in finalizing the IMF deal. The traders have again been protected despite the government agreeing with the IMF that it would collect Rs50 billion under a new scheme from them during the fiscal year 2024-25. The scheme has failed soon after its inception, so has the target.But the Finance Ministry has managed to keep the fiscal side under control on the back of higher non-tax payments. The expenditures are still growing at a rate of 20% and the Prime Minister’s promise to reduce the size of the government remains unfulfilled. Not even a single ministry or division was closed down during the first 10 months of Shehbaz Sharif’s government.The external sector shows some stability due to a controlled import regime and lower than actual value of the rupee that shut down the doors for the informal market of export and remittance receipts. The exporter and the foreign remitter received about Rs40 per dollar high price due to a dollar parity of Rs278.Experts like Ashfaq Tola – former Minister of State – and Deputy Prime Minister Ishaq Dar have said that the rupee-dollar parity is not more than Rs240 to a dollar in 2024.But the stable rupee throughout the year, regardless of the price, helped lower the inflation rate, which finally came down to an over six-year low level. This brought stability in the markets but the people did not get much relief due to the already elevated level of prices.There were no additional opportunities for employment creation and economic growth. The political and economic instability pushed many young people to leave the country.