Business Recorder
EDITORIAL: As the spring 2026 meetings of the World Bank/International Monetary fund gets under way in Washington DC (13 April to 18 April) the Managing Director of the IMF, the week prior to the meeting, uploaded the following: “a resilient world economy is being tested again by war in the Middle East. The conflict has caused considerable hardship around the globe…our focus will be on how best to weather this latest shock and ease the pain on economies and people…..So what hit us? A supply shock that is large, global and asymmetric: it is large because the world’s daily oil flow cut by some 13 percent, and its LNG flow by some 20 percent. It is global because all of us are now paying more for energy and with supply chains disrupted across the world. And it is asymmetric because its impact depends on proximity to the conflict, whether you are an energy exporter or an importer and your policy space.” While the third review of Pakistan’s ongoing Extended Fund Facility programme has been successfully completed on 28 March the press release twelve days after the conflict began notes that “the conflict in the Middle East, however, casts a cloud over the outlook as volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weigh on growth and the current account.” The details of the conditions, extremely harsh and upfront up to now, agreed between Fund staff and Pakistani authorities would be released as and when the detailed documents are uploaded on the website, subsequent to Board’s approval with no date set at present. However, the press release reiterates the same conditions though there is no mention of any flexibility in the implementation period – conditions that note maintaining a prudent fiscal stance, advancing fiscal structural reforms, strengthening poverty reduction and social protection, maintaining an appropriate tight and data dependent monetary policy, achieving energy sector viability, deepening structural reforms and building resilience to climate change. In this context, it is relevant to note that the staff-level agreement no doubt fueled market perception that Pakistan is not vulnerable to default – a perception reflected by the recent Fitch report that affirmed Pakistan’s credit rating at B negative defined as highly speculative credit profile, driven by high external vulnerability, significant financing risks, and low foreign exchange reserves. It is relevant to note that the perception may not have changed in spite of Pakistan’s intent to clear the 3.450-billion dollar loan recall by the United Arab Emirates (UAE) by the end of this month, perhaps sourced to as yet unconfirmed reports that the government has succeeded in securing 5 billion dollars from Saudi Arabia and Qatar. The Fund’s Chief Economist held a press briefing on the World Economic Outlook April 2026 dated 11 March and highlighted on the website is the following statement: “large defense spending booms have become more frequent, especially in emerging market and developing economies. In a typical boom, defense outlays increase by about 2.7 percentage points of GDP over two-and-a-half years, with roughly two-thirds financed through deficit….. Fiscal deficits worsen by about 2.6 percentage points of GDP, public debt increases by about 7 percentage points within three years, and external balances deteriorate.” Pakistan has been fighting terrorism emanating from Afghanistan and no country in the world would compromise on security and hence the uptick in defense spending is totally justified; however, one would hope that while the government does not stint in releasing operational expenses, yet serious effort is made to curtail all non-operational expenses, including pension reforms, given that the taxpayers cover the entire cost of pensions to civilian and military personnel budgeted at a little over one trillion rupees. Surprisingly, the World bank website focuses only on economic matters and it highlighted the question whether water can power the next wave of jobs and growth. Pakistan remains a water-stressed country, a situation that may become more critical if India continues to abrogate the Indus Water Treaty unilaterally but distressingly the water resources division was budgeted a mere 133,424 million rupees in the current year, lower than the 184,598 million rupees budgeted last year while building roads received double the amount. To conclude, there is a need for the forthcoming budget to rationalize expenditure through reforms in the tax sector (shifting away from heavy reliance on indirect taxes towards ability to pay taxes), energy reforms (not relying on borrowing to retire debt especially as the Middle East conflict is raising inflation that would prompt the Monetary Policy Committee to raise the policy rate), and slash current expenditure to get the leverage with the IMF to phase out the harsh upfront conditions that have eroded the rupee value domestically and the quality of life of the general public. Copyright Business Recorder, 2026
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