Momentary relief

THE IMF’s approval of the latest review of Pakistan’s ongoing Fund programme comes at a moment of growing global economic volatility. With the Middle East crisis disrupting energy markets, its timing is particularly significant for a country whose external position remains vulnerable to imported energy shocks. For Pakistan, whose balance-of-payments position depends heavily on external financing and remittance stability, the new tranche offers some respite. The approval of the review was not in doubt. It was just a matter of time, as Islamabad remains broadly on track under the programme. However, it did not come automatically. The government reportedly accepted a dozen new conditions, pledging adherence to pre-war targets to keep economic stabilisation efforts on track. A most consequential condition was evident in the decision to maintain a tight monetary stance despite mounting pressure for rate cuts. The IMF’s emphasis on guarding against inflation reflects concern that higher global energy prices could spill over into the larger economy. This means Islamabad is being asked to prioritise macroeconomic stability over growth impulse. Equally significant is the politically tough commitment to continue dismantling untargeted energy subsidies for lower-middle-income consumers. More importantly, the government has agreed to deliver a primary budget surplus equal to 2pc of GDP. The IMF’s praise for programme implementation should therefore not be taken as a victory. The current stability remains externally financed and is not rooted in durable productivity gains or export competitiveness. Hence, macroeconomic gains have remained fragile, making it all the more necessary to follow the Fund’s advice and stay the course. Our past engagements with the lender have followed a familiar pattern: initial compliance under pressure, temporary stabilisation and eventual policy reversals once immediate financing needs ease. The current external environment leaves little room for su