IMF Prescription Time Again
If the diplomatic and media backlash from Kargil was not enough, IMF tightened the economic squeeze on Pakistan. Insisting on GST of various percentage on electricity, water and gas, IMF delayed the release of the tranche expected by Pakistan in July, the latest date for expecting IMF funds is September. The Finance Minister Mr. Ishaq Dar is quite confident about receiving the IMF funds and the market seemed to agree with him, various financial experts remained pessimistic. Even without IMF adding to the proverbial pound of flesh, we are in serious economic straits. The Finance Minister, an incurable optimist, kept a brave face as he sought to minimise the effect on the common man but he might as well be speaking into the wind, which as everyone knows, can howl but cannot read. More financial misery is in store for the man in the street.
Pakistan is a strange place, all the economic indicators point to severe recession, yet the consumer market is booming, at least the shelves are full and people seem to have enough money to buy goods and produce. That is because fully two-thirds of our economy remains undocumented and outside the regulation of banks and other financial institutions. However, the lower middle class has vanished into poverty. The Pakistani Rupee has steadied against the US dollar, mainly because of intervention by the State Bank of Pakistan (SBP), which offloaded US dollars to shore up the falling rupee and lessened the gap between the official and the market rate. The nationalised commercial banks (NCBs) have been busy sopping up funds because of the “Crore Pati”-type schemes but stick-in-the-mud SBP has succumbed to Islamic pressure to put a stop to the lotteries that added billions to the banks’ coffers. The banks’ success in attracting semi-hot funds is by itself a failure, the very epitome of financial credibility having to fall back on circus-type lotteries to fill the banks coffers.
While Ishaq Dar strives manfully to plug the various loopholes, his major problem remains revenue collection and for that no finance minister in Pakistan over the past 52 years has had an answer in the face of political expediency and blatant corruption among the tax collectors. Even military dictators have used discretion to preserve their seats of power. There is something drastically wrong in a country of 130 million which has less than 1.2 million taxpayers i.e. less than 1% of the population. It is impossible for so few to bear the burden of so many for long and it is hardly a surprise that our foreign debts have risen by leaps and bounds since 1988. To add insult to the injury, any mention of taxes not being paid by those liable can evoke a concerted hue and cry from them. Till today the decision to impose GST on shopkeepers has never been even partially implemented, they form the core constituency of Mian Nawaz Sharif’s political support. Yet not so long ago, these very men had willingly lined up behind Ms Benazir Bhutto’s spouse-in-power Asif Zardari, eulogising him as the Second Coming of a financial Christ.
In the meantime, the bill for our national security just went up post-Kargil and in the absence of ready foreign exchange as well as a dearth of suppliers, our efforts to meet our material needs has to be multiplied both in terms of effort and funds. Even though the US is tilting towards India and our traditional source of military supplies has virtually dried up, there is always a buyer’s market in this unipolar world, provided the funds are available. The freeze on the overhauled French-origin Mirages and the new generation submarines must have been bitter to swallow, particularly when the equivalent, albeit less sophisticated, was available from the Chinese at many times less in cost. Despite the perceived Chinese neutrality in the present crisis, many people have failed to note that the Super-7 aircraft deal was signed during the PM’s visit and that should be an oblique signal if any about China’s continued support to Pakistan. As it is China realises that to contain China, other than Taiwan, the US would like to build up Japan and India. Already Japan’s Self-Defence Forces (SDF) are venturing on international missions and India-appeasement has become a stated western policy, the vast consumer market India has to offer duly adds to the lustre.
Pakistan has to be self-reliant if it wants to survive as an independent entity. We are not only geo-politically but geo-economically at an important crossroads, unfortunately we have remained export-oriented only and have never regularised the Services sector enough for the government to take financial advantage of this natural factor. We have been blessed with natural resources but are burning them away at an accelerated pace. Our road infrastructure is improving, thanks to the Sher Shah-ness of the PM but our rail communication is far worse than the British network in the 19th century. PIA has taken a dynamic initiative in increasing domestic traffic, striving to make the public more air-minded. To an extent they seem to be succeeding, at what cost one shudders to hear. One supposes that better a calculated risk than losing out by not doing anything to break the status quo. While PIA has a number of imponderables like over-staffing in almost all categories, there is a definite move to improve working and it has started to show, though still in patches.
While food autarky is hardly possible when we are feeding Afghanistan, some of the States of Central Asia, parts of India and Iran, many times our own population. We can maximise the yield by better farm practices and increasing the area under cultivation but what support do we give to the farmer? If we had given even 10% of the loans we have given to industry over the years our produce would have doubled, even trebled by the turn of the century. However we continued to give loans to industrialists, who continued to milk their industries and make them sick, particularly in the textile sector. Paradoxically, the men who have made maximum of their industries sick are the richest men in the country, having salted their money mostly abroad. Unless we take some steps to stop this money drain, we will continue to face economic apocalypse. Is there hope of ever bringing this money back? And who will redeem that desire?
The Government of Pakistan (GoP) has no choice but to enhance revenue collection immediately. Some of it can be accomplished by decentralising part of tax administration to the Provinces but a major portion of the revenues must come from sophisticated tax collection methods that should penalise offenders to the maximum. This is a national security issue. Kargil has shown that we cannot afford to let our defensive guard down but that keeping guard-up costs money. So does propaganda and we could only watch while India kept throwing money at defence and the media to turn defeat at the hands of a handful into a “victory”, at least on paper. The Armed Forces need infusion of funds as does development work throughout the country. By adding to taxes on the already burdened ones will only break the tax-payers back. What is needed is to lessen the taxes but to enlarge the tax-base from 1.2 million to 4.5 million. Bringing those who can pay taxes into the tax net is the only redemption that can sustain our existence as a nation. And maybe keep IMF away from making our entire middle class a poverty-stricken disaster zone.
Did you enjoy this post? Why not leave a comment below and continue the conversation, or subscribe to my feed and get articles like this delivered automatically to your feed reader.
Comments
No comments yet.
Leave a comment