Calculated Risk
After crucial discussions last week between the Finance Minister Senator Sartaj Aziz and the Head of the Fund Mission Muhammad Al-Eryan, the IMF official went back to Washington and made a presentation to the IMF Executive Board that in essence stated that Pakistan’s radical proposals for the revival of the economy was a “risk worth taking”. The major element of the calculated risk is based on the proposed size of reduction in taxes. As such the IMF team has recommended that talks be started with Pakistan to switch-over from the costly Stand-By Arrangement (SBA) to the low-interest Enhanced Structural Adjustment Facility (ESAF). In effect while expressing concern over the proposed massive tax reforms IMF seems to have bought the argument of the Pakistan side that SBA would add to the debt and in effect we would be running in place without any forward movement whereas once the “ball and chain” of high taxes was removed from our legs, our progress would be slow but sure. The logic of the Finance Minister’s arguments, buttressed by the position papers of 11 Task Forces composed of businessmen and senior government officials set up by the PM, impressed IMF that this time Pakistan meant business. We must recognize that the future lies in facing the obvious and determinedly tackling it, not in “fudging” statistics to fool others. In the end not only did we manage to fool ourselves but we had a date with economic disaster that only Presidential action, and subsequently the Herculean efforts of Shahid Javed Burki, managed to avoid.
The reduction in taxes means that there will be a commensurate shortfall of revenues. Senator Sartaj Aziz has taken Pakistan down this road of a calculated risk in the logic of “Supply Side Economics”, made famous in the 80s by President Reagan. In effect this strategy is based on the premise that lowering of taxes will in turn stimulate production and the resultant increased production will mean additional taxes, which being lower, will encourage all concerned to pay. This is an excellent logic because higher taxes meant increasing the cost of the product, putting it beyond of the reach of the consumer to purchase and thus making production stagnant as stocks remained unsold. This lack of demand resulted in most of our industries coming to a dead stop, there was immediate need to revive them by taking pragmatic measures which would increase demand and lead to increased production. The business community must now respond by paying its due taxes.
The biggest headache before the government would be to keep the budget deficit from increasing and balance of payments to a level that can be absorbed by the economy, as such stabilization measures inclusive of alternate sources, have always to be ready just in case. The government is committed to reducing expenditures and to controlling them, one such measure is to reduce the number of public sector corporations, most of them loss-making. Our political rulers must now get at the “sacred cows”, the most visible ones are the five door Pajeros, Toyota Land Cruisers, etc. Put our bureaucrats back into Pakistani-assembled cars a la Junejo, keeping the cross country vehicles (Hi-Lux pick-up type) for officials based in rural areas on a need-to basis. This is a must for public perception if they are to really believe that the government is serious. In a recent meeting with Police Officials in Lahore, all of whom arrived in spanking new Toyota Jeeps, when it was pointed out to them that the private sector would be able to buy 11 second-hand newly-dieselised jeeps for the cost of one Toyota Land Cruiser that their Superintendents of Police were using, they were aghast — and cynical. They fell back on the lame excuse of government-mandated “purchase procedures”, a nonsense argument that only promotes “Alice in Wonderland” logic. In short, we have to cut down on expenses all across the board, make every unit and sub-unit of government accountable for its budgeted projections, we must bring corporate accounting procedures into our 19th century bureaucracy. While the PM has yet to visit Karachi because of his commitments in Islamabad (mostly the economy), almost 40 days after he has taken over, why should some bureaucrats make the same journey every week-end?
The PM’s landmark speech devoted to the economy spelt out the elements of the revolutionary structural reforms. In essence these were the policy guidelines which formed the framework for the Finance Minister’s discussions with the Fund Mission about a week ago when an agreement of sorts was reached post-midnight. What is really a tremendous force-multiplier is that there seems to be a commitment among businessmen that they have vested interest in making the package work. Incidentally, this economic package is not something taken out of a hat, over the past three years Senator Sartaj Aziz spelt it out in at least 10 signed articles in the print-media. The policy was very much in the works, it needed the willing endorsement of our business community. When the private sector themselves came out with more or less the same suggestions, the vital element of consensus was there. Thereafter it was a short step to annunciation of the same. This is not a time for euphoria or self-congratulations but a time to take cognizance of our failures and weaknesses and to rectify the same. We must not forget the role played by Shahid Javed Burki in saving us from the economic guillotine to which we were condemned by the previous elected regime. It is also time to recognize that Senator Sartaj Aziz has given personal sacrifices without asking for reward in his role as the economy’s “indispensable man”. Unfortunately in our culture, whosoever does his job above and beyond his call of duty as a team-person without asking for recognition is never given that recognition or even due acknowledgement in the form of gratitude, at least publicly. That recognition or not, let’s face it, in commanding Senator Sartaj Aziz to go ahead and put his ideas into practice the PM, Mian Nawaz Sharif, has done what was considered by most economic analysts as “Mission Impossible”, having the courage to take a calculated risk in turning Pakistan’s economy around the corner. Incidentally this was not done by beating the IMF into submission but by logic and reason, convincing the IMF that we were credible partners in keeping Pakistan solvent.
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