New Delhi, April 1 (NationPress) The economic landscape of Pakistan is facing heightened vulnerabilities due to the ongoing crisis in the Middle East. The ramifications for the general populace are significantly more severe compared to countries that are not bound by stringent IMF loan conditions, as highlighted in a recent report by local media.

Over the last thirty years, Pakistan has been governed by military and civilian regimes from three major political entities: the Pakistan Muslim League-N, Pakistan Peoples’ Party, and Pakistan Tehreek-e-Insaf. Each of these parties has sought financial assistance from the IMF.

The current administration took over the IMF extended fund facility (EFF) in April 2022 and subsequently secured two additional loans. The article expresses concern that political considerations continue to overshadow economic necessities, plunging the nation deeper into financial turmoil.

Two critical components of the current budget, making up about 20% of total expenditures, necessitate urgent evaluation: expenses related to government employees (both civilian and non-civilian) and pensions (also civilian and non-civilian).

Public dissatisfaction is on the rise, with the poverty rate soaring to an alarming 42.4% as per World Bank data (using a threshold of $3.65 per day). Projections indicate that approximately 1.9 million people could fall into poverty by 2025.

Subsidies, particularly those for electricity, have also seen an annual increase. Employee-related costs and subsidies account for over Rs 2 trillion of the national budget. A reduction by half could provide some necessary fiscal space, which remains severely constrained and is a growing concern for IMF officials involved in the ongoing programs.

Another significant expense under current spending is debt servicing. The IMF's Deputy Managing Director recently remarked that central banks must closely monitor economic indicators to assess whether inflation is broadening beyond energy prices and whether inflation expectations remain stable.

A more effective strategy would involve decreasing both domestic and external debt by cutting current expenditure while ensuring that operational costs for both the civilian government and the establishment are fully funded. It is essential to reduce subsidies in the power sector and enhance the sector's performance to lower costs and prices, as emphasized in the article.

Currently, in light of the Middle East crisis, the situation remains precarious. The IMF Communications Director declined to provide a definitive answer during a press conference on March 19 when questioned about future implications.

The approach taken by the current government reflects outdated policies: a 10% reduction in development spending (with a direct adverse effect on growth), increased subsidies for fuel products (with a rise in petroleum levies on petrol—impacting lower-income households), and the establishment of a fund for subsidies that may lead to a higher budget deficit. This approach is viewed as inflationary rather than addressing the need to cut back on their own expenditures, lamented the article.