Connect with us

Business

High food, petrol prices can trigger protests in Pakistan, warns IMF

Published

2 years ago

on

  • IMF releases executive summary of seventh and eighth reviews.
  • “High food, fuel prices could prompt social protest, instability.”
  • IMF says PTI’s subsidy package led to missing end-June fiscal target.

WASHINGTON: The International Monetary Fund (IMF) has warned against protests and instability in Pakistan amid rising inflation — which just hit a 47-year-high in August.

Pakistan’s inflation measured by the consumer price index (CPI) has hit a 47-year high, accelerating to 27.3% in August 2022, the level last seen in May 1975. The full impact of massive flooding on the prices of food items and other commodities is yet to come.

“High food and fuel prices could prompt social protest and instability,” the IMF said, in an executive summary of the seventh and eighth reviews, released under the Extended Fund Facility (EFF).

The IMF Executive Board earlier this week approved the seventh and eighth review of the stalled $6 billion Pakistan programme, and two days later on Wednesday, the State Bank of Pakistan (SBP) received the much-needed $1.16 billion deposit.

The funds were received after Pakistan caved to several demands of the IMF for fiscal tightening. The Fund has also asked the country to ensure several measures after receiving the loan.

The report said that risks to the outlook and programme implementation remain high and tilted to the downside given the very complex domestic and external environment.

It said that the spillovers from the war in Ukraine through high food and fuel prices, and tighter global financial conditions will continue to weigh on Pakistan’s economy, pressuring the exchange rate and external stability.

The report further said that policy slippages remain a risk, as evident in FY22, amplified by weak capacity and powerful vested interests, with the timing of elections uncertain given the complex political setting.

Apart from the risks of protests, socio-political pressures are expected to remain high and could also weigh on policy and reform implementation, especially given the tenuous political coalition and their slim majority in Parliament, the report said.

“All this could affect policy decisions and undermine the program’s fiscal adjustment strategy, jeopardising macro-financial and external stability and debt sustainability,” it said.

Moreover, elevated near-term domestic financing needs may overstretch the financial sector’s absorption capacity and cause market disruption.

The IMF said substantial risks stem from higher interest rates, a larger-than-expected growth slowdown, pressures on the exchange rate, renewed policy reversals, weaker medium-term growth, and contingent liabilities related to state-owned enterprises (SOEs).

“Further delays on structural reforms, especially those related to the financial sector (resolving undercapitalised banks and winding down SBPs involvement in the refinancing schemes), could hamper financial sector stability and reduce the effectiveness of the monetary policy. Finally, climate change risks are mounting, including a tendency for more frequent climate-related disasters.”

‘Significant fiscal slippages’

The report also mentioned that the former government of PTI granted a four-month “relief package” in late February that reversed commitments to fiscal discipline made earlier in the year.

The largely untargeted package reduced petrol and diesel prices (through a generous general subsidy and setting fuel taxes at zero taxation); lowered electricity tariffs by Rs5/kwh for almost all households and commercial consumers; and provided tax exemptions and a tax amnesty.

“These measures were accompanied by the deferral of regular electricity tariff increases, as well as increases in the minimum wage and public wages and pensions, and additional food subsidies,” it said.

The retention of these measures, as well as additional slippages in the third and fourth quarters, widened the FY22 fiscal deficit by more than one-and-a-half percent of GDP — missing the end-June fiscal target by a wide margin, the IMF report said.

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Business

Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

Published

3 days ago

on

By

The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

Continue Reading

Business

The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

Published

3 days ago

on

By

The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

Continue Reading

Business

Positive IMF negotiations propel KSE-100 Index above 94,000 points

Published

4 days ago

on

By

As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

Continue Reading

Trending