IMF report exposes incorrect PTI policies that led to rupee’s devaluation

The International Monetary Fund (IMF) has issued its country report for Pakistan, exposing erroneous policies implemented by the PTI administration that, according to the Fund, undermined the country’s currency reserves and led to the rupee’s devaluation.

The study also discloses what the present administration, led by the PML-N, has promised the international lender, according to Samaa.

The study does not identify any political party, but it does mention rising GDP, which the PTI has said is the outcome of its policies. Pakistan’s GDP increased by 6 per cent in fiscal year 2021-22 (FY22), which ended less than three months after Imran Khan was overthrown by parliament in early April.

According to experts, the increase in GDP was driven by unsustainable expansion, which resulted in economic overheating. The IMF study comes to the same conclusion.

According to the Fund, GDP growth in FY22 was “driven by permissive fiscal policy and a delayed monetary reaction to inflationary pressures.”

These factors, together with worldwide food and fuel price shocks, resulted in a major worsening of the external situation, including an unsustainable current account deficit, a considerable decrease in reserves, and a significant devaluation of the rupee.

The PTI administration failed to respond to the worldwide commodity price increase, and its policies caused the rupee to depreciate and currency reserves to dwindle, according to the international lender.

Pakistan is at a crossroads in its economic development. Internal demand reached unsustainable levels as a result of a challenging external environment paired with procyclical domestic measures. According to the IMF, the resulting economic overheating resulted in high fiscal and external deficits in FY22, contributed to increasing inflation, and destroyed reserve buffers.

The PTI administration broke its pledges quickly after collecting roughly $1 billion from the IMF. Following the completion of the sixth evaluation, programme implementation worsened. In the midst of a volatile political scene, planned fiscal adjustment was reversed, and some significant EFF agreements were honoured, as per the report.

According to the report, the present administration has informed the Fund that it would reimpose the general sales tax (GST) on petroleum products and will not provide any fuel subsidies.

The current administration will not declare a tax amnesty unless Parliament first approves it. It will also simplify the sales tax on services throughout the country. Currently, different provincial territories apply varying rates of sales tax on services.

The Fund takes notice of the actions implemented by the PML-N administration to re-establish the IMF programme, including a budget based on a basic surplus, a rise in interest rates, and the elimination of fuel subsidies.

The IMF has advised the government to maintain a market-based currency rate, enhance tax income, and strengthen foreign reserves. The IMF also said that the lending programmes entail exceptional risks even after policy adjustments.