„The upcoming budget for the 2019/20 fiscal year is a critical first step in the authorities` fiscal strategy. The budget will target a primary deficit of 0.6% of GDP, supported by tax mobilisation measures to eliminate exceptions, limit special treatment and improve tax administration. This is accompanied by prudent spending growth, which aims to preserve essential development spending, expand Benazir`s income support program, and improve targeted subsidies to protect the most vulnerable parts of society. After exhausting all other options, Pakistan was finally forced to return to the IMF. But the nine-month delay did not improve Pakistan`s negotiating position and did not alter the difficult conditions that the IMF insisted on. If so, when the economy continued to slide (partly because of uncertainty due to government indecision), Pakistan was so desperate after the IMF program that it not only changed the entire upper level of the financial hierarchy – finance minister, central bank governor and chief financial officer – it also asked the finance minister (a man who showed a bit of courage and opposed some difficult conditions). That the IMF wanted to impose to stay away from the negotiations. The IMF agreement therefore signs Pakistan practically on the point line. In addition, the IMF insists on a „market exchange rate”. It is not entirely clear whether this means free movement of money or whether it allows for minimal intervention by the State Bank of Pakistan (SBP). In both cases, the market expects the rupee to depreciate by about 15-20% over the next few months. This is also because the IMF is probably insisting that positive net international reserves be maintained by the SBP. This means that SBP has to build up reserves by buying dollars, which will drive up the price of the dollar.

In addition, the policy rate announced by SBP is expected to rise by a further 150 to 200 basis points. Given that the interest rate has risen from around 6% to over 11% in recent months, it will rise another 2% to over 13%. The credit interest rate will rise accordingly between 15 and 16%, which will make business costs very high, stifle investment in the foreseeable future and lead to a contraction of the economy with the resulting increase in unemployment and poverty. . . .