THE IMF has expectedly announced a staff-level agreement with Pakistan following a smooth completion of the first review of the short-term $3bn bailout package, propping up the already buoyant stock market to a newer high and cheering up the rupee as the news somewhat lifted pressure on the exchange rate.

The programme goals and stipulations remain the same as agreed at the time of the approval of the bridge facility in July. The IMF has also sought greater transparency in the operations of the Special Investment Facilitation Council and the management of the assets under the Sovereign Wealth Fund.

The new demand betrays the lender’s concern that the recently constituted body, with powers to override any policy or decision and recommend fresh legislation to facilitate the promised investments from the Middle East, could cause distortions in the country’s investment regime and create a group of preferred investors.

The statement issued by the IMF mission at the end of its visit commended the progress made by the authorities and improvements in the macroeconomic fundamentals under the Stand-by Arrangement (SBA), arguing a nascent recovery — anchored by the stabilisation policies under the SBA, buoyed by the international partners’ support and signs of improved confidence — is underway.

In the same breath, the Fund has warned Pakistan against potential susceptibility of its economy to the “significant external risks, including the intensification of geopolitical tensions (in Gaza), resurgent commodity prices, and the further tightening in global financial conditions”. It adds that timely disbursement of committed external support remains critical to support the policy and reform efforts.

There is no doubt that the feel-good factor has returned in recent weeks if the recent takeover of the stock market by the bulls and currency appreciation on the back of army-backed administrative action against illegal dollar trade are any indicators. The headline inflation is also dropping, though very slowly. Pricing reforms in the energy sector, and a few baby steps in other areas, are also encouraging.

Nonetheless, the present ‘macroeconomic stability’ is superficial and fragile, only a small shock away from falling apart. The underlying economic conditions remain stressed.

The import controls and public development spending cuts might have helped the government meet its fiscal targets and keep the current account deficit in check. Yet it has suppressed demand and economic activities, led to job losses, and eroded the earnings of lower- to moderate-income households.

While the recent gains under the SBA need to be consolidated — in spite of the costs to people — over the next several months as underlined by the IMF and others, the sustainable reversal of the economic crisis will hinge on a bigger, longer-term IMF programme, and the return of a democratically elected government with a credible public mandate to do what needs to be done.

Published in Dawn, November 17th, 2023