Macro Bites

Macro Bite # 71

2 min read
Good News! Pakistan finally reached an agreement with the IMF this week, which will lead to approximately USD 1 billion being disbursed to the country as part of the Extended Fund Facility. The program had been paused or “in recess” since April, so what measures did the government take to convince the IMF to restart aid? (Spoiler: some Not-So-Good News ahead)

In a press conference, the (de-facto) Finance Minister, Shaukat Tarin, shared five steps the Government of Pakistan took to secure the approval of the IMF board. The first is the withdrawal of PKR 350 billion worth of general sales tax exemptions, as the IMF desires a universal 17% GST across the board. Standardising policy is not necessarily a bad thing, but unfortunately, this will likely translate to higher prices for consumers already suffering from inflation. The second step, increasing the petroleum levy by PKR 4 each month, is bound to hurt ordinary people even further, due to petrol’s demand inelasticity and poor public transport options.

The third step of granting State Bank further autonomy has its merits, as does the fourth step of auditing the beneficiaries of Covid-19 funds. Finally, the government has been forced to slash its spending through the Public Sector Development Programme by more than PKR 200 billion to cut its fiscal deficit.

Cutting government spending while hiking indirect taxes looks a lot like austerity, a policy that many rich Western countries embarked upon a decade ago, but have since abandoned due to its failures. For poor countries like ours however, there are few other choices.


KSE-100 fell week, as the petroleum dealers strike led to a decline in economic activity across the country. PKR depreciated marginally this week, as a decline in SBP net reserves dented investor confidence. Local gold prices fell again this week, in line with international prices.

The annual change in Sensitive Price Index rose to 18.64% vs. 18.34% last week. The poorest of the country (Q1) witnessed a change of 18.86% vs. 19.45% for Q5. On a weekly basis, prices fell for all quintiles by 0.67%.
Increase in prices of Cooking Oil (+1.32%), Ghee (+0.59%) and Milk (+0.11%) contributed to weekly inflation. A fall in the price of Tomatoes (-15.4%) and Chicken (-6.62%) helped moderate inflation this week.

What Else We’re Reading (Local)

  • Is crop insurance essential for growth in Pakistani agriculture? (Profit)
  • The rising numbers of locally assembled smartphones is an encouraging sign for the industry. (Business Recorder)

What Else We’re Reading (International)

  • The latest Covid mutation highlights an uncomfortable reality; new variations will continue to occur until rich countries ensure that all countries have access to the vaccine. (Bloomberg)
  • Honduras, a country whose current president was named an alleged co-conspirator in a US drug trafficking case, is having presidential elections this Sunday. (FT)

Asad Pabani

Journalist, researcher and documentary filmmaker. Prior works featured in Dawn, Soch Videos and Pioneers Post.

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