Following the successful conclu­sion of the review on the second tranche, Pakistan is now eligible to receive the third and final tranche (amounting to $1.1 billion) of the nine-month Standby Agreement with the International Mone­tary Fund (IMF). With that, the country’s drive towards em­bracing a market economy re­commences – reminiscent of the post-Cold War 1990s. Pakistan finds itself back at square one.

The nudge, mediated by the IMF, is in­tended to compel Pakistan to introduce structural reforms to achieve the targets of liberalisation, deregulation, and pri­vatisation – a maxim close to the IMF’s heart. As a result, Pakistan must allow its currency to float freely, relinquish con­trol over several state-owned enterpris­es, and permit privatisation. The primary objective is to lessen the burden of expen­diture on the government. The second­ary objective is to strengthen the private sector, which upholds the aim of perfor­mance with efficiency and profitability.

With its three tranches, the Standby Agreement, which concludes in mid-April, has placed a premium on both ef­ficiency and profitability in Pakistan. No country can continually compromise on these aspects solely for the sake of sov­ereignty, expressed through state con­trol, especially when lacking natural resources (such as crude oil) to run its economy at its own behest. The country must reduce its imprint on the shape and flow of the economy. The condi­tions leading to the issuance of the third tranche are bound to reset the bound­aries of Pakistan’s sovereignty, with far-reaching administrative, political, and economic implications.

Through the mutually agreed third tranche, the IMF has reshaped the con­tours of Pakistan’s trajectory. One ben­efit could be that, after undertaking the agreed structural reforms, Pakistan would be less reliant on internation­al borrowing and aid in the future. Eco­nomic sufficiency would allow Pakistan to make decisions without appeasing one bloc of international players against another. Additionally, international play­ers would find fewer levers to manipu­late Pakistan to their advantage. Eco­nomic adequacy would help Pakistan shed the image of a client state.

By successfully securing the third tranche, Pakistan has acknowledged the success of the Standby Agreement, which in turn has set the tone for any Extended Fund Facility (EFF) offered by the IMF. A reason for accepting the con­ditions for the third tranche was Paki­stan’s interest in the EFF, contrasting with the frequent past practice of aban­doning agreements with the IMF mid­way, incomplete. To avert sovereign de­fault on external payments, a nervous Pakistan desperately requires further monetary assistance from the IMF in the future. Pakistan is gripped by pan­ic and demoralisation, seeing no pros­pects for any financial aid, windfall or otherwise, from any quarters of its re­gional or international associations. On the other hand, twenty-three inter­actions with Pakistan have mellowed the IMF, which has adopted a calm ap­proach, now hedging its bets.

Whereas the Standby Agreement is considered essential for Pakistan’s eco­nomic stabilisation, a long-term bailout package (such as the EFF) is considered mandatory for the country’s sustain­able economic recovery. Nonetheless, the Standby Agreement has prepared the ground for introducing reforms through the EFF, expected to be negoti­ated after mid-April.

The third tranche is responsible for initiating further internal wrangling within Pakistan. Political parties that lobbied for the 18th Constitutional Amendment (passed in April 2010) to materialise the goal of provincial au­tonomy enshrined in the 1973 Constitu­tion are the most reluctant to accept any curtailment of their autonomy. The cor­responding 7th National Finance Com­mission Award (signed in December 2009) financially expressed the concept of strong provinces and a weak Centre, personifying provincial autonomy, with­in the context of the federation. In fact, without financial leeway granted to the provinces, the idea of provincial auton­omy in political terms is otiose.

In 2010, the provinces had concluded that mere administrative empowerment was insufficient to embody the right of provincial autonomy within the federa­tion, called Pakistan. If the provinces are not performing to their utmost, it is not the fault of the concept of provincial au­tonomy. Instead, it is because the Cen­tre somehow retained ministries that should have been devolved to the prov­inces immediately after 2010. Now, in 2024, the provinces are reaping the re­wards of this fourteen-year deficit. The provinces stand defeated by the Cen­tre’s capacity for the retention of pow­er. Islamabad, epitomising the Centre, is no longer simply a city; instead, it is bor­dering on the status of a province – an undeclared, unrecognised one. The Cen­tre’s yearning to retain its potency con­tributes to provincial inefficiency.

The third tranche has also dictated that the presence of circular debt in the electricity and natural gas sectors is un­acceptable. No subsidies can be provid­ed. Instead, tariff adjustments must be made by raising rates, while protecting the vulnerable through the existing pro­gressive tariff structure. Similarly, re­tail and real estate businesses must be brought into the tax net. The policy of exclusion has brought Pakistan to its knees, as the country is forced to sell na­tional assets to avoid bankruptcy.

Both the existence and performance of the Federal Board of Revenue (FBR) are under scrutiny. The organisation has re-affirmed centre stage in the make-or-break of the country’s economic ad­equacy. As an immediate concern, the third tranche has done two things: first­ly, it has readjusted the revenue targets for the FBR; and secondly, it has asked the FBR to drop its quarterly approach and make monthly efforts to meet the revised targets of revenue collection to reach 30th June successfully. Never­theless, the near future is bound to see structural renewal of the FBR to im­prove its performance. Come what may, Pakistan is heading for digitalisation and documentation of the economy.

Dr Qaisar Rashid
The writer is a freelance columnist. He can be reached at qaisarrashid@yahoo.com